Is Multi-Unit Franchising Right for You?

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.

  
  

  
  

• Is this a work role you want? Virtually all multi-unit operations have managers who run the individual units. Someone has to manage these managers (we’ll call this a general manager or GM). You need to decide if GM is a role you want to perform. The general manager has two main tasks. Proactively, the GM sets performance standards for each manager and holds managers accountable for results. Reactively, the GM is the first person to get called whenever a problem or issue arises that a manager doesn’t know how to deal with. If you think through the role from either side, you’ll quickly get an idea of whether or not this seems like how you want to spend your working life. Another option is to hire a GM so you don’t have to play this role yourself, but then a chunk of your profits are going to pay the GM.

  
  

  
  

• Will this strategy provide the lifestyle you want? Even if you do the GM job yourself, sooner or later most people want to achieve a lifestyle that includes more freedom from day-to-day work responsibilities. How much will it cost you to do so? The first cost is the direct cost of hiring employees to do your work so you can gain the freedom you want. The second cost, which is often even greater, is how the overall performance of the business will be affected by having a manager run things rather than the owner. Many multi-unit owners have learned that the cost of achieving the lifestyle they want puts their businesses at risk.

These considerations are all important in thinking through whether a multi-unit operation is the right thing for you and whether or not the company you are looking at is right for multi-unit franchising. Spend the time it takes to carefully think through all the factors before you act, and you’ll make a much better decision for your future.