By Helen Fotinos
More and more franchisors are targeting multi-unit franchisees to realize their development goals and more and more franchisees are joining the cue to invest in multi-unit/multi-brand concepts. If you are an aspiring multi-unit franchisee, here are a few things to consider before you invest:
What’s your goal?
Understanding your motivation is critical because there is a world of difference between the skill set and mindset of a single vs. multi-unit owner. Single unit owners are primarily interested in securing a career for themselves and their families; expansion may occur over a period of time, with the risks and rewards also spread over time. Conversely, multi-unit owners view franchising as an opportunity for rapid growth. Multi-unit owners work “on” rather than “in” their business, focusing their efforts instead on attracting the right talent to manage and grow their business.
Choose the right brand
Choose a brand that aligns with your passion, lifestyle, values and goals. Before partnering with a franchisor, ask yourself the following questions: Are you passionate about the product or service offered? Do you share the brand’s vision? Is the brand scalable? Can it be profitable? Do they offer multi-unit investor discounts on franchise fees? Do they have the resources, processes, training, technology and systems in place to support multi-unit operators? Speak to other multi-unit owners in the system and find out what they have to say about the brand. Do your research. Look for industries that align not only with your interests but also with market trends and present the best opportunity for growth. Will the brand still be relevant in five to 10 years?
Choose the right growth model and strategy
The big question for growth is always how big, how fast? Unfortunately, there is no simple answer to that question. Much will depend on your risk tolerance, available capital, desire to grow and ability to develop necessary infrastructure and attract the right people. The four most common structures for multi-unit growth are: (i) single unit agreements; (ii) area development agreements; (iii) area representative agreements; and (iv) master franchise agreements. Single, area development and area representative arrangements are more common in domestic expansion strategies. Master franchise arrangements tend to be preferred for international and more remote jurisdictions where the franchise cannot and/or is less interested in asserting control and investing its personal resources.
Show me the money!
There are many financing options available: bank loans, personal savings and home equity, government programs, partnerships and personal loans from family and friends. Lenders look at a variety of criteria, including work experience, education, personal finances and network. They also evaluate the success of the brand itself, the proposed location(s) and your business plan.
Invest in good legal counsel from the very beginning. A good lawyer will help you navigate your franchise business, whether you are a single or multi-unit owner. You will have a better understanding of your options, rights and obligations and will be able to execute your goals more strategically and with confidence.
It’s not just business, its personnel
People make the difference. Build and retain an all-star bench by investing in strong training and leadership programs, incent and reward performance, recognize achievements, share the wealth and provide a clear path for advancement, including opportunities for personal franchise ownership.
It’s a brave new world
To keep pace with the speed of business and consumer expectations, you must invest in the business infrastructure and technology required to support a multi-unit business. Manage the bottom line by partnering with service providers who can provide real time reporting on cash flow, operating costs and inventory. Create systems that drive efficiency and eliminate “busy work” to free-up more time for creative initiatives and regular contact with your staff and customers.
Patience is a virtue
Growing too fast is worse than not growing fast enough; a failed franchise is a stain on the reputation of a franchisee and a franchisor. Existing units should be profitable, generating sustainable revenue, operating smoothly and contributing to a positive culture before you invest in another location.
About the author:
Helen Fotinos is a partner at McCarthy Tetrault LLP and is co-chair of the National Franchise and Distribution Group. She can be reached at firstname.lastname@example.org or 416-601-8011.