When you go into the franchise business, one of the big decisions you will have to make besides what type of franchise to join is whether to invest in single-unit franchises or multi-unit franchises. While multi-unit franchises require more money and more work upfront in the long run they can give you a better, faster return on your investment.
First, it is important to understand what multi-unit versus single-unit means. Multi-unit franchises are when a franchisee purchased the rights to develop and multiple units in a particular territory. When you own multiple units, you are less likely to be involved in the day to day operations of a single unit. You will instead be focused on the overall management of all of your units. You will need to have general managers and staff you can trust at each of your units to make sure they are successful.
And as a multi-unit franchisee, you will sign an area developer agreement, which outline the number of units that you agree to open and in what time period and in what specific territory you will do so. Typically your territory is protected from encroachment unless you don’t fulfill all your agreements. If you don’t stick to the schedule laid out in the agreement, you could be at risk of losing your rights to open any more locations under the agreement.
A single-unit franchise means that you entered into an agreement with a franchisor for just one franchise unit and no expectations for later expansion into multiple units. Many single-unit franchise units are owned by people interested in owning their own business, but are not looking for or don’t have the capital for a larger enterprise.
With single-unit franchises, the franchisee is usually the main operator of the unit who runs the day to day operations. With a single-unit franchise, there is only a single franchise agreement between the franchisor and the franchisee.
Here are 6 reasons why multi-unit franchises are smarter than single-unit franchises:
1. Lowers Your Overhead Expenses Per Unit
While the initial startups costs will be higher for multi-units, once your units are established, you will be able to lower your overhead expenses per unit because you will have some fixed costs that will be shared across all locations. For example, if all your locations will share the same vendors, then you will be able to negotiate better deals for goods and services.
2. Offers You Better Stability
I am certain you have heard the horror stories of new franchise businesses folding in the first year. That is a big fear for new franchise owners, but it doesn’t have to come to fruition if you plan right. And part of your plan is to start with multiple units right from the get go thus improving your chances of success. Each of your units can help buoy each other up if lean times hit.
3. It Is Not As Expensive As You Might Think
While you will have to be more money, it might not put you in the hole as much as you might think. Franchiser owners often offer discounts and incentives to their franchisees if they purchase multi units. If you know you want to eventually expand anyway it might make sense to buy them now at a lower cost.
4. Helps You Establish A Stronger Brand
The franchisor will be providing you with some marketing and advertising messaging to help attract customers, but the great thing about owning multi units is that you can establish your brand within the larger brand, but showing the customers what makes your multiple units stand out from the rest. And because you will want the same central message across all three units, you will be able cut down on the money spent of advertising and marketing.
5. Some Franchisors Will Only Sell Multi Units
You will have more options to choose from if you are willing to buy more than one unit. Some franchisors prefer to sell units this way because territories can be developed more quickly. They also tend to prefer to work with just handful of franchisees who each have several units then a large pool of single owner units which tend to struggle more.
6. Will Help You Establish Stronger Relationships
Another benefit of owning more units is that you will develop more contacts in the franchise world and with vendors and real estate agents.
Before making any final decisions, sit down with some trusted financial and legal advisors to go over all the pros and cons of buying three franchise units instead of one. Going through is a bigger investment and requires a lot more responsibility, but if done right can reap many rewards for you.
Besides the financial investment you might be wondering how you will juggle all the responsibilities of three units. Franchise experts who have been down this road before suggest hiring a general manager to oversee all your units and then a manager for each unit. That way you can set up meetings with all of them to go over how each unit and the overall brand is developing. The key is to have a general manager and managers who are as invested as you are in making the business a success and who share your overall vision for what you want the business to be.
A franchise consultant can be really helpful going through this whole process. They will help you go over your finances and make a good list of what you are looking for in a franchise business. They can also help you with all the legal paperwork. They should be able to steer you away from franchises that are not a good fit for you and whether a multi-unit purchase is right for you. Because they know the industry so well, they will be able to connect you to so many more potential franchisors then you could on your own.
If you think a franchise consultant can help, consider MBB Management. Some of the services MBB Management offers you include franchise development for new franchise programs, strategic planning for franchise growth as well as help with all the legal documentation involved. They also offer assistance with developing operations and training documentation and franchisee recruitment marketing strategies.
Want to know more? Contact MBB Management today.