As business owners, franchisees put a lot of time and effort into growing their franchised business. However, once you have one successful business and become familiar with the business model, you may want to expand your operations. One way to do this is to own multiple franchise branches. This article will take you through how you can own multiple franchise units and the advantages and drawbacks of doing so.
What is Multi-Unit Franchising?
Multi-unit franchising refers to a franchisee owning more than one franchise outlet. When franchisees operate multiple units, they typically take on a more business development role. This means they are likely to hire an experienced management team to run each location or several locations at a time rather than participating in the day-to-day operations of each unit.
Can I Own Multiple Franchise Units?
Before being a multi-unit franchisee, the first thing to consider is whether the franchisor will permit you to do so. Sometimes, the franchise agreement will expressly exclude you from becoming a multi-unit franchisee. However, if your franchise agreement does not exclude this, you must still seek the franchisor’s permission.
Often, the franchisor will set specific criteria for who they will grant the ability to own multiple units. For example, you may have to:
- meet minimum sales criteria;
- complete additional training;
- pay increased fees, such as an additional franchise fee; or
- provide evidence of your financial and operational ability to manage multiple units.
Benefits of Multi-Unit Franchising
There are several benefits to being a multi-franchisee. Some of these are outlined in further detail below.
Greater Revenue Potential
Naturally, the more businesses you own, the more significant opportunity you have to increase your customers and sales. Overall, this has the potential to lead to greater profits. In addition, this means multi-unit franchisees can build equity in their business much faster than single-unit operations.
Improved Operational Efficiency
Another key benefit of multi-unit franchising is increasing your commercial efficiency. For example, multi-unit franchising may allow you to:
- negotiate better prices with suppliers;
- share expenses between your franchise units;
- share equipment and resources; and
- increase the mobility of staff members between your franchises, such as managers.
In addition, a multi-unit franchise will allow you to increase your marketing efficiency. This is because you can run marketing campaigns supporting all your locations. Such a campaign costs the same for franchisees who own only one location. However, you can highlight all your locations for the same price.
Increased Network Influence
Having multiple units in one franchise also gives you a more significant influence over the broader franchise network. This is particularly relevant in franchises where franchisees have voting power on network decisions. For example, franchisees can vote on whether to introduce a major operational change to the network. In that case, you will have more votes if you own multiple units. Being a multi-unit franchisee may give you more leverage with the franchisor. You may also have the opportunity to work with the franchisor directly on issues that impact the network.
Drawbacks of Multi-Unit Franchising
Although multi-unit franchising has numerous benefits, it has its downsides. We explore some of the key risks associated with multi-unit franchising below.
Financial Risk
Firstly, there is an increased financial risk when owning multiple franchise units. This is because you will incur more costs when you have multiple businesses.
Further, your financial risk increases when your money is placed into one business. For example, consider the franchise network as a whole decreases in value. This might occur due to any number of reasons, such as:
- changes in laws and regulations that impact operations;
- new competitors; or
- other adverse events that impact the franchise’s reputation.
Increased Competition
Another downside of owning a multi-unit franchise is that your units may be competing with each other. When opening up a new franchise unit, you must ensure that you keep business from your existing ones. You should conduct thorough market research to determine whether having multiple franchise units will overcrowd an area and reduce the success of your overall multi-unit franchise.
Operational Difficulties
Finally, another downside to operating multiple franchise units is the operational difficulties. Your ability to successfully manage one franchise unit may mean something other than you are suited to operating multiple units. This is because being a multi-unit franchisee comes with its challenges. However, having well-developed systems and a reliable management team will help make running your business easier.
Owning Multiple Single-Unit Franchises
It is worth noting that there is another way to be a multi-unit franchisee. You may purchase multiple single units from different franchises. Your franchise agreement will likely prohibit owning multiple franchises, mainly if they are similar businesses that would impact your competition. However, owning multiple units from different franchises can minimise the risks that arise from investing all your funds and efforts into a single franchise network. Although, owning multiple single units has its own challenges, such as it being extremely challenging to balance different systems.
This publication provides you with the fundamentals for franchising your New Zealand business, including set up, branding and management.
Key Takeaways
Owning multiple franchises can be a great way to expand your business operations as a franchisee. However, you must refer to your franchise agreement to determine whether it is an option for you. Some key things to note about multi-unit franchising include that it:
- allows you to focus on managing your branches;
- can increase your revenue potential, operational efficiency and network influence; and
- has various downsides, including a greater financial risk, increased competition and operational difficulties.
If you need assistance determining if you should be a multi-unit franchisee of a New Zealand franchise, 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
Multi-unit franchising is where a single franchisee owns and operates more than one business. Some franchise agreements will expressly exclude franchises from becoming multi-unit franchisees. If a franchise agreement does not exclude this, franchisees must still seek the franchisor’s permission.
There are several benefits to multi-unit franchising. For example, you can increase your revenue potential and operational efficiency. Additionally, you can increase your influence on the broader franchise network by owning multiple units.
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