Understanding industry concepts from the inside out before making a life-changing decision.
Multi-unit franchising can be an intimidating endeavor to new business owners. The opportunity always lingers, and it’s imperative to understand whether or not it’s the right fit for you and your entrepreneurial ventures before you bite off more than you can chew. The first step involves understanding franchising as a whole, along with the array of options offered by different industries.
Let’s start with the service industry. When referring to multi-unit franchising in terms of service, one usually alludes to a master franchisee with a web of unit franchisees that span out below. JAN-PRO’s business structure is one example of this model.
The multi-unit concept is slightly different in consumer-based industries such as retail and restaurants. In these multi-unit franchise deals, the idea refers to the same franchisee owning multiple real estate locations. In this case, there is not necessarily a “home base” for the franchise owner.
Owning multiple locations seems like the ultimate dream for an entrepreneur; expansion equates to success in the minds of most savvy business owners. Expansion, however, can be lead to a flourishing brand’s downfall if risks aren’t taken into account prior to signing on the dotted line. After years of watching franchisees navigate through expansions, a few pros and cons have rung true time and time again.
Pro: Higher earning potential. With multiple units ultimately comes a larger payout.
Con: ROI takes longer to establish. The rate of investment after a second and even third opening takes time to build back the down payment toward initial costs. For many multi-unit franchisees concern about the time it takes to earn the money back mounts and results in hasty decision making. Franchisees have to understand that the money will come, but not as quickly as with the first location.
Pro: Build a better relationship with banks. The more establishments owned, the more qualified you will seem to banks—this will increase your chances of securing a larger lump sum to run your business.
Con: Not understanding the market potential and over saturating. Many franchisees agree to sign two or more unit deals within their first year of development without researching the market. Prior to opening your business, identify the need for business expansion in the area. It’s one thing to break into a market with a new concept, but opening multiple locations in an unsustainable area is a whole different beast. Though the goal of most franchising businesses is expansion, make sure you know that you can be successful.
Pro: Working with an established brand image. After your first unit opens, you’ll have already built a relationship with your most loyal customers. This network is often used as momentum when opening a second location. Trust and word-of-mouth are extremely valuable.
Con: Taking the backseat while others run your business. Depending on the number of units owned, general managers become an integral part of your business as your role changes. The new hired staff now becomes the face of the location, with the brand image backed by the franchise name. As a multi-unit owner, you no longer have your hand in all of the daily activities, which can be difficult for most hands-on entrepreneurs.