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Understanding Franchise Arrangements

Understanding Franchise Arrangements

When you decide to become a franchisee it is important to choose which type of franchise is best suited for your individual needs. It is very important to choose the right plan for you and this means having a clear understanding of franchise arrangements.

Factors which can affect an individual’s decision on which type of arrangement to choose:

a) Available Investment
b) Managerial Ability
c) Ambition

For example if a candidate has money to invest, excellent managerial skills and high ambition, not wishing to be confined within a school then a single unit franchise would probably seem limiting and they would be more suited to an Area or Master Franchise. On the other hand, if the individual is a teacher wishing to open their own business and has limited capital then a single unit franchise would be ideal.

Detailed below are the various types of Franchise Arrangements available with Alexander Language Schools (ALS), and a clear definition of each.

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Single-unit or direct-unit franchises
As a franchisee you will obtain the rights to operate a single unit. This is the simplest and most common type of franchise arrangement.

Area development
Franchisees can become area developers either over time (1.21) or by pre-specifying the number of schools they wish to open. (1.22).

Multiple single-unit operators
Acquiring schools over time: As one school prospers they venture into opening additional schools (single-units).
Over time changes may occur in fees (Initial and/or Continuing), therefore differences may occur between the agreements signed for additional schools and the initial single-unit contact. (No changes will occur to signed/existing contracts).
As a franchiser we have the rights to periodically update the franchise agreements by means of modifying the following:

1. Change in the fees, initial/continuing fee or both
2. Franchisee requirements: franchisees may be required to purchase some additional equipment or invest in new technology,
3. Obligations: changes maybe made to some of the obligations between the parties,
4. Other Changes: we may make some other changes.
If a contract has been signed then the rules/terms defined at the time of signing the signing of the contract apply, any changes will only apply to new contracts signed.

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Pre-Specified Agreement (no. of schools to be opened)

In the case the franchisee will own a number of single units, the number of schools to be opened will have been pre-specified and an agreement will have been made to open the schools over a given time period.

Benefits of pre-specifying the number of schools you will open:
Suppose that you want to open ten schools in your town. If you buy one franchise at a time, you risk having to share the market with other franchisees from the system and take the risk that territories will have been sold before you're ready to purchase them.

In the case of a ‘Pre-Specified Area Development’ agreement, we will grant you exclusive rights for the development of locations in your area, over a given period of time. For example 10 schools over a 5 year period.

As you identify each location, you will sign a single-unit franchise agreement. (The rules/terms that will apply for each schools/contract will be defined by the rules/terms in use at the time of the signing of the contract).
If you fail to meet the development schedule, the franchisor typically has the right to cancel the development agreement and keep the area development fee.

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Master franchises (Sub-Franchisors)

As a Master franchisee you will be required to open one school (as a pilot school). After which you will act as a Sub-Franchisor of the Franchisor (Alexander Language Schools (ALS)), in a designated area. You will be required to recruit prospective franchisees and sell the single unit franchise package. These franchisees will be your franchisees and thus termed ‘sub-franchisees’.
The ‘sub-franchisee’ will be required to pay you, the Sub-Franchisor, a franchise fee, a proportion of which will be given to the Franchisor. The ‘sub-franchisees’ typically will pay a royalty (continuing fee), which you also share with the franchisor. The percentage paid to you from the ‘sub-franchisees’ will be dependent upon the type of agreement /contract you sign with them.
The Franchisor manages the Sub-franchisor who in turn manages the sub-franchisees ensuring proper establishment and supervision of the franchise system.

Alternative sources of legitimate revenue are offered to Master Franchisees. 

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