The Pros and Cons of Multi-Unit Franchising

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Brands are increasingly realizing the value of multi-unit franchising, and the practice is on the on the rise. Economically, the practice makes sense.

During the recession, multi-unit franchisees fared much better than single-unit franchisees in part because these multi-unit franchisees had more infrastructure and better access to capital, which enabled them to better weather the economic storm.

Furthermore, brands are increasingly recognizing that it is much more advantageous to support a handful of very large, well-capitalized franchisees than to have a very large cadre of individual franchisees who may run into trouble when sales are volatile. The bottom line? Across the board, brands are interested in soliciting multi-unit franchisees.

Nevertheless, it is crucial to note that while multi-unit franchising can be advantageous, it also presents a unique set of challenges. Perhaps most notable is that the shift from single-unit ownership to multi-unit ownership requires a franchisee to shift focus from operations to development. He or she needs to be prepared to take a step back from day-to-day operations to focus on the bigger picture of growth and development.

Basically, you need to work on your business instead of in your business. So before you decide to venture into the world of multi-unit franchising, you should have an idea of what you are getting into. So, what are the pros and cons of multi-unit franchising? Let's have a look.

CON: Increased risk.Let's face it: Growth means risk. If you're considering making the move from single-unit franchisee to multi-unit franchisee, you need to be prepared to assume more risk, particularly more financial risk. You're likely going to need to take on more debt and have a larger operation to manage. The bottom line? You need to invest in infrastructure if you want to grow, even if you don't necessarily have the revenue to do so. If you decide you're going to invest in infrastructure only once you have revenue, you may never have the revenue. This, of course, means making personal sacrifices. Remember, growth might be rewarding, but it isn't always easy.

CON: More time dedicated to human resources. A significant portion of a multi-unit franchisee's time has to be dedicated to HR. It's one of the few things that cannot be delegated completely. You as the franchisee understand your company culture and you understand who would fit in what role. The franchisee also needs to be involved in the hiring and recruitment process to make sure that the right kind of leadership is brought on board.

CON: More operational headaches. With more locations, come significantly more operational issues to control and manage. Managing multi-unit operations can be one of the biggest management challenges out there. So before you jump in, make sure you have best practices and technology in place to help you grow, scale, and effectively manage operations.

PRO: Increased profit. Of course, as with anything in life, the greater the risk the greater the reward. Multi-unit franchising certainly comes with a unique set of risks. However, when done successfully, multi-unit franchising can be tremendously financially rewarding. Growth means profit in many cases.

PRO: Multi-unit franchise growth is good for your entire team. Growth is an excellent human resource strategy. You might have extremely talented, skilled people working for you. But if these valuable employees don't see growth on the horizon, they are unlikely to stick around. It's much more likely that they will seek growth opportunities elsewhere. Multi-unit franchising is not just about developing for your own personal gain. It is also about developing new opportunities for your team. Remember, the better the team that surrounds you, the better you will do in the world of franchising.

PRO: Economies of scale. The more locations you have can often times provide economies of scale that allow you to actually save money. For example, you can quality for discounts on large order purchases which reduce your costs overall and provide competitive price advantages. Further, with more locations, you can share personnel resources between teams for things like Maintenance and Repair as well as Marketing resources.

PRO: Great freedom and flexibility. The rewards of multi-unit franchising aren't just monetary. They are also personal. The larger your organization, the more freedom you, the boss, ultimately has. Multi-unit franchising is about building infrastructure. The more infrastructure you have in place, the more freedom you have. Think of it this way: If you have a solid network of franchises in place and the appropriate staff and resources to properly run them if you miss a day off work, business will continue as usual. This differs dramatically from the role of a single-unit franchisee who often has a critical role in the day-to-day operations of the business.

The bottom line? Multi-unit franchisees may just have more freedom and flexibility, giving them a better quality of life. So, if you are a seasoned single-unit operator, now might just be the time to expand.


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About this Entry

This page contains a single entry by Jason Duncan published on June 25, 2014 2:30 PM.

Who Else Wants a Reliable Predictive Performance Tool for Recruiting? was the previous entry in this blog.

Do You Recognize these 8 Warnings Signs of Franchise Failure? is the next entry in this blog.

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