Why You Should Make the Move to a Multi-Unit Franchise

Opening?that?first?franchise?store is hard work. It takes nerves, perseverance and resilience, and months of working all day, every day. Eventually, a thriving and sustainable small business is created. And then, you face a question you may never have thought you were ready to consider: Should you?operate two stores? And then, what about three? What about 103, like Domino’s pizza franchisee Michael Orcutt? In the franchising world, there’s no limit to your ambition --?but you have to grow smartly.

How to get rich with multi-unit franchising

The way to get rich in franchising is to sway the magic of?compounded returns ?in your favor. Franchisees like Flynn keep growing by using what is essentially house money – meaning that the profits gained from the first location are used to fund the next. Once you have a few stores, you can live on the profits from one and reinvest the profits from the others to grow your?franchise ?business. Once your business is big enough, you'll have regional management between you and your stores, creating a system that makes money whether you're onsite or on the beach.

Khurram Burney, a multi-unit franchisee with?The Halal Guys , grew his business this way, and his only regret is that he didn't think bigger from the start. "What I would have done differently was definitely have a bigger territory," he says. "I have five stores and wish I would have signed up for 10-15 units."

The more?successful ?units you open, the more opportunities will be presented. Strong multi-unit franchise operators are able to spot underperforming units in neighboring territories and purchase these stores for a bargain. Because of the efficient systems that a multi-unit franchise operator has in place, they're able to turn around these underperforming stores in short order.

When first getting into franchising, people often don't consider the end game. If you are a multi-unit franchise operator, there is what I call a "second bite of the apple" – meaning that more often than not, the franchisor will buy back successful locations at a premium. Even if that doesn't happen, when you have successful multi-units, you have a business that can be sold when the time comes for retirement or your next act.

Reduce your risk with multi-unit franchising

While many people perceive multi-unit franchise ownership to be?riskier ?than being a single unit owner, it's actually the opposite. With multiple franchise locations, your risk is spread out – not concentrated. For example, during the?pandemic , if you had one restaurant in a downtown location, you were likely in trouble as offices shut down. However, during that same period, take-out orders from suburban restaurants skyrocketed. If you had a?diverse ?franchise portfolio, your different locations would have balanced each other out and weathered the storm.

Multi-unit franchising = lower costs + more leverage

Lowering your operating costs starts from the get-go for multi-unit franchise operators, as most franchisors discount the franchise fee when you purchase multiple locations.

Multi-unit franchise ownership is also a hedge against the current?labor shortage . Multiple locations give owners the ability to move employees around as needed to cover any short-term staffing issues. Additionally, multiple outlets reduce labor costs. Many concepts today don't require a general manager at every location and can employ a super manager over a few stores. This management structure means that instead of hiring a general manager who makes $60,000 at three locations, you can hire a super manager who makes $75,000 to oversee all three.

The more locations you have, the more leverage you have with?suppliers . Not only does this reduce the cost of goods, but as a bigger customer you'll have more bargaining power to get your supplies in a timely manner, a particularly important advantage considering the current?supply chain constraints .

With multiple locations you'll also defray marketing costs, because your costs are the same to promote one store or multiple locations in an area.

“I think a lot of people come into?franchising and buy a single unit because they want a job,” says Lorne Fisher, the founder of Fish Consulting, which specializes in franchise marketing. “If they get one unit and x amount of income, they’re happy. But enterprise-building franchisees must have the skills to manage multiple units at once and also run a back office. You’re dealing with lots of moving parts, and it’s not for someone just getting into franchising to pay the bills. It requires a radically different mindset than single-unit franchisees’.”

Do you have what it takes??

Growing for the Right Reasons

Experienced multi-unit franchisees all say the same thing: Before you expand, you need to think hard about why you’re doing it. “Do you have clarity on why you want to become?a multi-unit owner? Is it to make money??To diversify your holdings?” says Aziz Hashim, a veteran multi-unit owner with?26 restaurants?and a general partner at NRD Holdings, a private equity firm that invests in franchises. “There are ways to grow beyond buying a higher unit count. If you are able to double the volume of your current unit, that is pure profit. Would you rather have?30 units that make money --?or 100, of which 30 are stagnant and 30 lose money?”

Here’s one good potential answer: You want to grow your business because you’re ready to grow as a leader. With multiple units, you can’t be running the joint anymore. You’ll become a true CEO and be building a true corporation with many different kinds of people to manage --?operations manager, accounting staff, training staff, field managers, human resources and other employees. “You’re not behind the counter anymore,” Hashim says. “You have to have the entrepreneurial mentality that you are working on your business and not in it. You have to find the best use of this newfound time, and you have to learn to trust advisers and your managers. Everything might not be as perfect as if you did it yourself. And you have to be OK with that.”

Bonnie Alcid is making that transition now. She owns three British Swim School territories in suburban Maryland and Virginia but hopes to grow even larger. So, to prepare, she’s building an operation that can manage that larger workload. “I’m restructuring my company from top to bottom and adding on this new layer of management,” she says. “I really think this will help me take things to the next level over the next six years.” She recently brought on a director of operations, who oversees the daily management of the franchise --?essentially replacing herself. That’s cut down significantly on her 60-hour-a-week workload, and freed her up to focus on the parts of the business she enjoys --?training new swim instructors and teaching --?and the parts she’ll soon be taking on.

?spent years adding units but only recently started adding employees to her management team so she could keep her focus on growing the business. “Even if you own a few stores, you will still find yourself behind the counter on any given day if a manager or an employee doesn’t show up. But eventually you reach a unit number where you can afford the management infrastructure to handle operations and any emergencies.”?

Finding great people, however, can?be difficult --?so don’t rush it. That’s why Phil Collins, a Maaco collision repair franchisee with 13 units in North and South Carolina, says hiring the right employees is his number one priority. “When you attract people and they buy into your vision and dream, it’s amazing how your business grows from that,” he says. “To create a multi-unit operation, you have to be a coach and sell people on your beliefs, and make sure they carry them through.”

??Stay single or go multiple

There’s no one right answer, of course: Every option carries risk. But you can pick the one that works best for your business.

And finally, you’ll have to make a very familiar decision --?because it’s the same kind of decision you made when you opened your first unit: What’s the location? “It’s really hard to grow fast unless you have the right real estate opportunities,” says Joey Robinson, who, along with his wife, Cheryl, has 37 Super Cuts franchises in Southern California. He suggests that you pay close attention to local real estate trends and never settle for subpar locations. If your locations are too spread out, it’s hard to get on-site quickly?to handle any problems.”

Brooke Wilson learned that lesson?the hard way. In 2004, she opened a Two?Men and a Truck unit in Raleigh-Durham, N.C. Then she bought a location in?Atlanta, where her husband had family. “After that, we realized we couldn’t just grow organically like that. We needed a strategy,” she says. So she began clustering locations along the I-95 corridor to lessen the chance of trucks traveling empty between jobs, boosting her profits. She?now owns seven units between Atlanta?and Washington, D.C.

There will be endless other smaller decisions that have to be made along the way, and Hashim stresses that there’s no?one path to success. Instead, he says, you should make sure to get away from your single unit for a while: Attend multi-unit franchising conferences, spend time networking and develop mentors in the multi-unit world. “The knowledge to?open 80 or 90 units doesn’t just drop down from heaven,” he says. “You have to go?out and find the people who’ve done it?and learn from them.”?

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Note:Above article wordings are from entreprenuer.com