Franchising: Are You Multi-Unit Worthy?

It seems that ever since the economy started to tank, franchisors (large and small) seem to think that the secret sauce to success is recruiting multi-unit franchises to join their system.  The reality is that not all – actually very few – franchise concepts are multi-unit material.  With Franchise Update Media Group’s annual Multi-Unit Franchising Conference coming up at the end of the month, I thought this would be a timely topic for AllBusiness readers.

The current registration for FUMG’s conference validates my comment above since they are at record numbers with nearly 600 people planning to attend.  So why are the MU folks getting all of the love?  Great question, Lorne!  (Well, thank you.)

It is true that MU owners have better access to cash or the ability to securing financing more than most entering franchising.  They also have the experience in operating as a franchisee and understand how it works.  More than likely they have an infrastructure (marketing, accounting, operations, etc.) to manage their units more efficiently.  Bottom line is they get it! 

For all of these reasons, franchisors want MU owners in their system since they will require less hand holding and it ultimately keeps the number of franchisees to support lower.  More units run by a handful of franchisees is much better than a 1 to 1 ratio. 

OK, so you’re saying, “Tell me something I don’t know.”  Correct, the above is not totally new.  In fact, it's pretty obvious. 

So, what should a franchisor do to determine if they are truly MU worthy? 

They need to look hard at their system and answer the following questions.  If the answer to any of these are no, figure out how to make them a yes.

Do you have any current multi-unit owners in your system?  Remember, technically "multi" refers to two, but three is really the magic number.  Running two units is doable – husband or wife, partner, etc.  They can split the duties and make it work.  Throw a third unit in there and you’ll really see if it works.  I also understand that there is a bit of the chicken and the egg thing here, but the best first MU owners are the organic ones. 

Do you have robust systems to help the franchisee manage the business?  This is one of the most important areas MU owners look for.  They want to know you – the franchisor – understand the tools the franchisees need to succeed.  Do you provide adequate training for their teams?  Remember, they have a staff that needs to be trained, not them.  What does your financial management system look like, POS program, inventory management, etc.  They’re evaluating you as much as – if not more – than you.

Do you have an FPR in your FDD?  If not, can your franchisees validate the business model financially? Ideally, an FPR would be the best tool to show potential MU owners that your business has the potential to make them money.  It should be a real FPR and not one that has 9 point type with the qualifier that basically dilutes the figures.  If you are truly ready to be a MU owner, the business numbers should speak for themselves.  If for some reason you don’t use one, franchisees should be able to really validate the financial opportunity.  And remember, this will only work if you said yes to the first question above.  MU owners just want to speak to other MU owners.  Makes sense.

There are many other questions for the Are You MU Worthy? quiz, but in my opinion these are the first.  Not everyone is ready for the scrutiny these operators will put you through when evaluating your business.  They are savvy and have been around the block quite a few times.  Sometimes more than you.  Be prepared.