What is an Area Representative?
Probably created in response to sub-franchising, franchisors did not approve of the loss of power and sharing of royalties when they could easily have the entire cookie. The solution resulted in the arrangement known as the Franchise Area Representative.
The Area Representative pays a certain fee for the right to solicit prospective franchisees and to provide certain service to existing franchisees in a defined franchise territory. The Area Representative acts as a salesperson for the franchisor and once they find a new franchisee, the area representative does not enter into any contracts with the franchisee. They do not exercise any power unlike a Sub-franchisor. All the franchise agreements are entered into directly between the franchisor and the prospective franchisee. All payments by the prospective franchisee are made to the franchisor and no transaction takes place between the prospective franchisee and the Area Representative.
The reason why anyone would choose being an Area Representative is that they are paid a certain portion of the initial franchise fee of each new franchisee they solicit as compensation. Aside from the sales commission the area representative may get paid by the franchisor a portion of the royalties received for servicing franchisees. In some cases, franchisors will pay the area representatives a portion of the fee received from new franchisees in the reps’ territory even though the area representative may have had nothing to do with the screening or recommending that particular franchisee. However, all these and other contingencies- such as compensation for furnishing many of the pre-opening and on-going services to the franchisee- should be covered in the area representation agreement.
The area representative is most often a franchisee in the defined territory, owning one or multiple units. The area representative may own a unit completely or may have smaller ownership in several units.
Before Buying a Franchise Identify Your TRUE Investment
Your approach as a potential franchise buyer is to identify the real investment dollars you’ll need to get the franchise to profitability. The initial source of this information is Item 7 in the FDD. Item 7 is a schedule that details the estimated investment in the franchise. This schedule includes the cost of various items, including: the initial franchise fee, training related expenses, rent, insurance, professional fees for legal and accounting services, supplies, equipment, licenses and permits and additional working capital. Depending upon the specific franchise, there may be added categories. When reviewing the Item 7 schedule it’s important to know that franchisors are not required to list every type of fee or expense that might be part of the investment in the franchise but rather the likely investment needed to start the franchise. As you work to establish your investment number keep in mind the words “estimated” and “typical.” Item 7 is a guide, and as such, you should use this information accordingly.
Learn How to Grow Your Business from the Experts
Did you know that only about 50% of small businesses are able to last three years or longer? Do you want to be one of the businesses that is to succeed, profit, and grow?
10 Tips for Trademark Selection
In the past few weeks, I’ve discussed what constitutes trademark infringement, how to protect your image and intellectual property online, and some recent developments in the law regarding use of competitor keywords in search engine marketing. This article goes back to the fundamentals, and discusses ten tips for selecting a trademark.
