Organizing refers to the coordination of human, financial, and physical resources which are necessary to reach the vision, goals, and objectives of the franchise business. Organizing in a franchising business is very unique. It may be the most uncommon business organization structure found in the world today. 

RULE OF THUMB: The franchisor should divide his organization into two primary activities: (1) sales -- to franchisees, and (2) operations.

Activities involved in the organizing function would include the identifying of jobs required to be performed, staffing each job with qualified people, determining how much authority and responsibility each person should have, and defining the authority -- responsibility of relationships which should exist within the organization. Additionally, job descriptions in an organization chart should described and graphically represent these relationships in the organization.

Organization Chart The organization chart is useful for showing proper relationships as well as indicating the formal decision and communication channels within the franchising organization. The start-up franchise organization is best divided  with the franchisor as the CEO and two distinct operating activities underneath: franchisee sales and operations.

Beginning Franchise Organization  The franchisor must also determine how they will expand their franchise units. The franchisor generally has the right to do this through single unit franchise sales and multi-unit franchise sales generally through 

(1) area development, 

(2) subfranchising, and 

(3) master franchising.

One of the major sources of expansion in franchising is the allocation of geographic territories to new franchisees. This is often done by granting geographical areas, primarily DMAs (designated marketing areas) to individual franchisees. The franchisor uses the DMA which is a television market coverage area developed by the A.C. Nielson ratings map and is a very common method of allocating geographic territories based primarily on the market media for advertising and promotion. The DMA is simply a map that outlines television viewing markets exclusive of one another and allows for an easy determination of franchise territories and boundaries.

Area Developer The area development agreement is one of the most popular ways to create multi-unit franchises. The development agreement allows the franchisee (developer) to develop and operate multiple units in a given specific area. This right is generally accompanied by obligations to create and establish a specific number of franchises in the designated territory over a given period of time. The time period allocated is generally about five years. Most time periods are not extended beyond that because the franchisor needs to be able to rescind all development agreements if the franchisee is not going to comply with and develop the area.

The franchisee generally will develop the territory as fast as possible and is often required to develop at least one franchise unit per year in the specific territory. The area develop agreement developed by the franchisor generally covers the number of units which are to be established over a given time period, the approval methods, and the site selection methods. If the franchisee fails to meet the schedule, then the franchisor has the right to reduce the area or revoke the exclusivity granted under the original area agreement contract.

The developer is required to pay an initial development fee to retain a geographic area for the specific territory. This fee may include a fee of $5,000 to $10,000 for each franchise which would be developed in that specific area. For example, if you were starting a fast food restaurant in Kansas City and you were going to develop ten restaurants over the next five years, then the area development agreement may require a down payment of $50,000 to $100,000 to secure the area development agreement. Generally the franchisor will allocate back to the franchisee the $5,000 to $10,000 for each franchise developed. For example, if the original franchise fee was $25,000 then as each new store was opened the franchisee fee charged would only be $15,000 to $20,000 depending upon the area development fee originally charged.

The franchisor can sell single unit franchises to franchisees or they can offer area development agreements to franchisees and ask them to develop a specific geographic territory.

Subfranchises Subfranchising occurs when a franchisor grants an individual or group the right to franchise the franchisor's business in a specific territory for a set period of time. The franchisor may reserve final approval of the selected subfranchisee, the actual operator/owner, and thereafter the subfranchisor has total control over the relationship. The subfranchisor may even use its own franchise agreement and assumes all obligations such as training and field support services to all subfranchisees. This method of franchising is finding disfavor with many franchisors because of the added complexity and legal liabilities which the franchisor still retains because the use of trademarks and trade names related to the franchise organization.

Master Franchisee There is an additional method of franchising that is very commonly used when American franchisors franchise internationally. The individual or entity known as the "master franchisee" is generally granted the rights within a prescribed territory and for a specific period of time to solicit prospective franchisees. The franchisor directly enters into a unit franchise agreement with many the prospective franchisees that it approves. However, in foreign countries, the master franchisee will be responsible for the solicitation and signing of each franchisee and will generally provide the training and other services to the franchisee and usually receives a percentage of the franchise fees paid to the franchisor. A master franchisee also has the right to develop and operate franchise units within the territory assigned.

As a franchise system grows, the franchisor will generally add key personnel which include marketing, training, and financial executives. These people will be able to add support services to both the sales and operations side of the organization. They are very important to the continual growth and success of the franchising mission.