Multi-Unit Ownership Presents Attractive Option for Franchisees
One of the primary considerations for someone who is researching a franchise opportunity is whether to own a single location or multiple units. Multi-unit operations are a common practice in franchising, have many benefits and should be a key part of an individual’s due diligence process when exploring franchise ownership.
According to a recent report by FRANdata, 54 percent of all franchises are multi-unit operations, with 43,212 multi-unit operators controlling more than 223,213 franchised units in the United States. It is also a growing trend, as there was a 23 percent increase in entry-level multi-unit owners (2-5 units) during an eight-year span from 2010 to 2018.
The restaurant industry has the highest concentration of multi-unit franchise ownership. Almost every storefront franchise, whether it be a fitness concept, tax service, automotive or beauty-related business, has a large number of multi-unit franchisees. Very few franchisors do not allow their franchisees to own several locations, while some, like major hair cutteries, expect their people to own multiple units.
A similar situation also applies for serviced-based franchises without a storefront location. Instead of operating multiple stores, service-based franchisees own several territories in which they have exclusive rights to operate within a given geographical area(s). This grants them additional growth opportunities and is a common practice within franchising.
Benefits of Multi-Unit Franchise Ownership
There are many advantages to owning more than one franchised establishment, whether it be additional revenue streams, lower operating costs, time commitment or staff flexibility. Opening the first franchise location is often the most difficult. There can be a steep learning curve as the franchisee learns the new system. It also requires the owner to be more hands-on in running the business and spend more time on-site.
That process actually becomes easier when a franchisee owns additional establishments. At that point, the franchisee can hire a manager and put a strong team in place to run all the locations while only needing to oversee operations from a big picture perspective. That can lead to fewer working hours, greater personal flexibility and a better work-life balance.
In addition to having another source of revenue, owning multiple franchised units provides franchisees with greater income diversification than managing just one location. It can sometimes mean a safer investment since they don’t need to depend on a single site to make all the revenue while also helping survive any difficult economic times.
There are also several operational benefits to owning multiple franchises. Whether someone owns two or five locations within a certain area, the marketing program will benefit every location and strategy becomes more efficient. If there is a situation in which a manager or employees are unable to work on a given day, other staff members from different locations can be brought in to fill their void. The person who handles the business’ accounting and finances can take care of that across multiple units. There are tremendous economies of scale when it comes to opening multiple locations.
To take advantage of many of these benefits that come from multi-unit ownership, it often makes the most sense to invest in multiple locations under a single brand. Franchisees are able to maximize their efficiencies while operating multiple units in the same system. Some owners chose to diversify their operations by owning franchises across several brands. As a franchise coach, I would recommend first opening several with one brand before buying additional locations with another brand.
The Value of a Multi-Unit Franchisee
Successful multi-unit operators are very attractive in the eyes of franchisors. The franchisors invest a lot of time, money and support into a new franchisee as they teach them the system. This includes things such as helping them find the right location, negotiate their lease, hire and train staff, and market their business.
When a franchisee learns the system, much of that assistance from the franchisor is no longer necessary. Once a franchisee is proven and successful, that person becomes a great candidate to open more locations. There is less support needed from the franchisor and there is a higher potential for success.
Some franchisors actively seek candidates who have experience in owning multiple locations. In the restaurant industry, many franchisors will only accept franchisees with restaurant franchise experience who have operated a large number of units. I recently spoke with a group wanting to open a restaurant franchise who were basically turned down by the franchisor who was looking for people who had a track record of owning multiple locations and the money to do so.
Deciding on Multi-Unit Franchise Ownership
The desire and comfort level to own multiple franchise locations varies for each person. Some people prefer to open a single location and grow from there while others want to start by signing a multi-unit deal. When I talk with people about this, I essentially ask them if owning one location will meet their needs.
People who do the proper due diligence should get a good idea of how much their earning potential will be from one location. If that meets what they are looking for in their lives, they should only sign up for that location. However, if one location is not enough, they should probably sign up for multiple locations and do that at the outset of the process.
In some cases, the franchisor may discount the franchise fee for every additional unit or territory purchased by the franchisee. It also gives the franchisee exclusive access to a particular area and ensures they are not blocked by other owners if they wish to expand and grow their business.
Multi-unit ownership is a popular and growing trend within franchising. If operated correctly, it can be a very profitable and successful form of business ownership.