In Short
- Multi-unit franchising allows successful franchisees to operate multiple outlets, often within a designated territory.
- Benefits include increased revenue potential, staffing flexibility, and a stronger bargaining position with the franchisor.
- Multi-unit franchising requires careful planning, strong management skills, and adequate capital to succeed.
Tips for Businesses To succeed in multi-unit franchising, assess your readiness thoroughly. Ensure you have the capital, management structure, and expertise required for multiple units. Engage with your franchisor about potential support, such as training or mentorship from experienced multi-unit franchisees, to navigate this growth successfully.
Operating multiple franchise units can be an attractive proposition for a high-performing franchisee. However, it is not unusual for a franchisee to manage a single franchised business before owning multiple units. This article will take you through four key things you should know about multi-unit franchising.
This publication provides you with the fundamentals for franchising your New Zealand business, including set up, branding and management.
1. Multi-Unit Franchising
A multi-unit franchising unit is where a franchisee owns more than one franchise outlet. It is often the case that a franchisee will open and operate a single franchise unit only. However, if they are successful, they may buy or open additional franchise units with the franchisor’s approval.
In other instances, multi-unit franchising occurs when the franchisor grants a franchisee a large territory. In doing so, they open multiple outlets within this area. An area developer typically does this type of franchising. An area developer requires sustainable capital and business expertise to successfully franchise on a large scale.
2. Advantages
One of the key advantages of this structure is that it allows a franchise network to grow by leveraging experienced and well-performing franchisees. In addition, one of the benefits of multi-unit franchising is that it enables a franchisor to utilise the skills of an existing franchisee. As a result, the franchisor knows that their franchise network is expanding and being run by franchisees who have already proven their ability.
There are also benefits for the franchisees themselves. They can potentially:
- utilise their existing skills and knowledge;
- increase their revenue with each unit;
- reduce staffing problems by moving staff between franchisees; and
- improve their bargaining position with their franchisor
3. Disadvantages
Despite the benefits of multi-unit franchising, you should consider several disadvantages.
First, not all franchises are suited to having multi-units. For example, if a franchisee struggles to operate one location only, it is unlikely that the franchisee will succeed in managing multiple franchise units at once. To reduce this risk, a franchisor may consider providing specialised multi-unit training and seminars to allow franchisees to develop the necessary skills. Additionally, a good franchisor might connect them with other franchisees who have successfully operated multiple units to gain mentorship and support on best practices.
Moreover, a lack of planning for multi-units can also lead to failure. A franchisee’s ability to successfully manage one franchise unit does not necessarily mean they are suited to operating multiple units.
4. Suitability for Multi-Unit Franchising
Another critical factor is what makes a franchisee capable of operating under a multi-unit operation system. This is because a franchise will not always have the resources or training capabilities to facilitate a multi-unit structure. If this is true for your franchise, multi-unit franchising may only be an option later.
To determine whether a franchisee is suited to the multi-unit structure, you should:
- create an assessment criteria to determine the franchisee’s capabilities;
- engage with the prospective franchisee to understand their goals;
- ensure that the franchisee has the necessary capital to sustain multiple units; and
- be willing to educate a franchisee on the management of various units.
Further, you must also consider that a franchise will only be suitable for multi-units if they have a capacity for growth. It is insufficient for a franchisee to want to expand for the sake of expanding. Instead, you must gauge the market to assess demand for the brand’s offerings.
Key Takeaways
A multi-unit franchising unit is where a franchisee owns more than one franchise outlet. Before exploring whether multi-unit franchising is suitable for your franchise, you should understand the benefits and disadvantages and consider whether the franchisee is suited to a multi-unit franchise.
If you need assistance with your franchise network, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page.
Frequently Asked Questions
Before pursuing multi-unit ownership, confirm with your franchisor that you meet the franchise network’s suitability requirements. Once approved, consider several key factors, such as your financial goals, capital position, management experience, and other unique circumstances. Seeking legal, accounting, and financial advice is essential to make informed decisions.
Managing multiple franchise locations requires a stronger management infrastructure than a single-unit operation. Key staffing needs often include area managers or supervisors to oversee operations, as well as dedicated training or operations staff to ensure consistent training programs and standardised procedures across units. A centralised administration system can further streamline bookkeeping, payroll, and HR, providing operational efficiency and reducing potential liability.
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