The Risks And Rewards Of Having Multiple Franchise Locations
Written by Tim Morral
Multi-unit franchising is more appealing than ever. But entrepreneurs are discovering that there's a big difference between operating a single unit and multiple locations.
In January, private sector franchising added 20,000 jobs, doubling the pace of the overall labor market for the past 12 months.
That's not surprising, given that the International Franchise Association (IFA) forecast for 2016 calls for the franchise sector to outperform the general economy for the sixth straight year.
Despite concerns over minimum wage hikes and other issues, franchising continues to be the hot alternative to independent business ownership -- so hot that it's attracting entrepreneurs who are eager to reap the benefits of a multi-unit franchising strategy.
Multi-unit franchising simply means that a single owner has multiple locations for a given franchise. For example, if I owned six Dunkin Donuts franchise in various locations around the Chicago area, then I'd be a multi-unit franchisee, reaping the various perks of having multiple locations.
But while multi-unit franchising can deliver serious rewards, the addition of new locations can just as easily be the first step toward a small business disaster.
A Mixed Bag of Opportunities and Challenges
Like any other ownership strategy, franchising presents a combination of opportunities and challenges. Although multi-unit franchising offers greater potential rewards, it also presents greater risks, even for seasoned franchisees.
The possible rewards of multi-unit franchising include:
- Higher Profits -- If your existing location is profitable, there's potential to increase profits by adding new locations.
- Economies of Scale -- Multiple locations lower certain costs (e.g., supplies, advertising, etc.) by increasing your buying power.
- Diversification of Earnings -- In some cases, a multi-unit approach can insulate you from regional downturns.
The flip side of multi-unit franchising is that it exposes you to risks that you can avoid as a single-unit owner:
- Management Challenges -- If you're currently managing day-to-day operations at a single unit, you'll need a new management plan for multiple locations. You should also know that staffing a franchise can get tricky with multiple stores.
- Financial Exposure -- If your franchise concept suddenly nosedives, you're on the hook for the capital and debt associated with multiple locations -- not just one.
- More Headaches -- Multiply the amount of headaches and hassles you experience at your current location by the number of locations you plan to add. Challenges don't go away with multi-unit franchising. They multiply.
The decision to move from a single unit to a multi-unit franchising strategy shouldn't be taken lightly. In addition to considering your financial exposure, it's important to consider whether or not you're truly up to the task of operating and managing multiple stores.
It's also critical to engage your franchisor in a serious dialogue about the implications of multi-site expansion. Franchisors often encourage their franchisees (especially successful ones) to take the leap to multiple locations, but you'll need to make sure that the associated fees, territory rights and other details line up with your goals and expansion strategy.
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