Everywhere you turn today in franchising you hear the same message – multi-unit franchising is all the rage! Multi-unit franchising is hyped in articles, advertisements and even special multi-unit trade shows. What’s behind this phenomenon?
The driving force behind the multi-unit trend seems to be an assumption that you can make far more money by owning lots of franchise locations rather than just one. In other words, if a single unit makes $50,000 per year, then if I open 10 of them I’ll be making $500,000 per year, which represents “real money.” Sometimes people are also attracted by the idea of building an “empire” rather than just a business, and are seeking more challenges to go along with more rewards.
These attributes seem attractive to many people, but before you decide multi-unit franchising is right for you, you need to do a little more research. Here is a short list of the most important considerations to weigh before making any multi-unit decisions.
- Have other franchisees proven that multi-unit ownership works in this industry? There are a few franchise industries — hair care, for example — that have been built for many years on the assumption of multi-unit ownership. They have business models that feature manager-run units and support systems that make it possible for the franchisee to oversee a number of units without being in each one for any extended time period. Such systems are rare because most franchise business models do not lend themselves to this approach. If you are evaluating a multi-unit purchase in an industry or with a specific franchise where there is no long-term track record of success with this approach, then your risk in using a multi-unit strategy to grow is significant.
- Do you have sufficient capital? It takes a much bigger capital investment on your part to open multiple units than to open just one. You need to understand your capital requirements thoroughly before making any such decision. Will you be investing all of the money personally? Will you be borrowing some of it and, if so, what guarantee do you have that the loans will be available at a reasonable rate when needed? Are you anticipating the profits of the business will support future investments in additional units? If so, what will you live on while your profits are going to open more stores? All of these questions need to be carefully considered before deciding on the multi-unit strategy. Don’t fall into the trap of thinking you’ve got plenty of capital just because you can cover the initial franchise fee.
- Do you have sufficient management skills? Running a multi-unit franchise operation is a very different management challenge from running a single-unit business. You can only be in one place at a time, so in a multi-unit scenario you rapidly become dependent on others to actually ensure that the product or service is delivered to the customer in the best manner. That means your business’s performance is often determined by the weakest operator in the organization rather than by the strongest. Some people have past experience working effectively through others to get results, and they thrive on such a challenge. If you’re not one of those people (based on your work history, not on guessing), then the multi-unit strategy is not for you.