Single vs. Multi-Unit Franchise Ownership: Which Model is Right for You?

Did you know that 800,000 franchise businesses today in the United States run on an owner operator model? And of that, 82% of those owners only have one franchise location that they operate? That tells us that the other 18 percent are a multi-unit operator, which are franchise owners that own and operate multiple locations in their territory, and/or even across the United States.?

Understanding Your Motivations and Goals for Franchise Ownership

You may want to ask yourself when you're looking into franchising, is single unit ownership or multi-unit ownership for you. I want you to ask yourself a few questions:?

What are your motivations and goals for getting into franchise ownership? Is it to replace an annual salary, so that you can own and operate? Or is it to build an empire to leave a legacy behind for your family, your friends, or favorite foundation after you're gone? Do you want to get into franchising for yourself so that you don’t have to report to a boss and replace your income from your corporate job, or do you want to set your sights on developing multiple locations and multiple brands to create generational wealth for you, that you can pass down to your offspring??

Single Unit vs. Multi-Unit Ownership: Skill sets, Capital, and Long-Term Vision

It's really important to think about what your motivators are because the skillsets and capital required to do a single franchise location versus a multi-unit (2, 3, 5 unit empire) require significantly different qualities and capital requirements. There is a reason that only 18% of the franchise owners in the United States own more than one franchise location. The capital infrastructure and access to capital is very stringent.?

Now, if you’re only interested in exploring single unit franchise ownership, what you really need to nail is showcasing evidence that you have basic business acumen and financial literacy. More specifically:?

1. Understanding of Business Operations: While you may not need extensive experience in running a business, having a fundamental understanding of business operations (e.g., sales, marketing, customer service, and financial management) is important.
2. Financial Literacy: You should have a basic grasp of financial statements, budgeting, and cash flow management. This will help you understand the profitability of your location and make informed decisions.

Now , let’s talk about the path to Multi-Unit Franchise ownership, specially the Capital and Financial Qualifications that you can expect to be held to:

1. Access to Capital: To be a multi-unit franchise owner, it requires significant upfront investment. Potential franchisees need to demonstrate that they have the necessary capital, either through personal finances, third part investors, or loans (secured and unsecured debt) to qualify. They also need to meet the franchisor’s specific financial requirements for net worth and liquid capital. This is typically a multiple of the initial net worth and liquidity requirements you see for one unit. For example:

Single Unit Qualifications Multi-Unit Qualifications (i.e. 3 units) Liquidity: $250k Liquidity: $750k Net worth: $750k Net worth: $2.25M

Financial Stability: Franchisors prefer candidates who bring a strong financial background to the table. This is important because scaling to open multiple franchise locations increases the financial complexity to run the business. A stable personal financial history signals a lower-risk partnership potential lenders and franchisors. Potential franchisees that come to the table with extra liquidity for working capital will give the Franchisor more comfort in the approval process. Additionally, in a lot of cases for franchisors, working capital is far more important than a credit score.