If two locations are better than just one, then are three or four better still?
When an entrepreneur starts a new business they usually concentrate on one location, and growing that site to its maximum potential. Franchising brings a different dimension to the growth opportunity with a multiple-unit option.
Many franchise operations are built on the premise that a franchise owner will automatically gravitate to extra units or, in fact, even acquire several unit locations at the outset. Not all franchises, however, are created equal – some offer that multi-unit growth opportunity, whereas others are strictly a one-location venture. Territory is usually the overriding factor that determines whether extra units are applicable or not.
When you look into the world of franchising, be it a single unit or multiple units, there are always some very specific ‘due diligence’ areas that you need to cover. They cover topics such as finance, management, territory and market conditions. Reviewing all of these, and other up-front considerations is a must for a would-be franchisee. If at the outset you are considering a multi-unit opportunity, then these due diligence items take on an extra level of review. From the finance point of view, it is almost certain that the entry cost for several units will be greater than just one. While there may be advantages in buying several units at the outset – in as much as you can negotiate a better franchise fee – if you are looking at a ‘store-front’ type franchise, then your build-out expenses will certainly escalate.
Likewise, working capital requirements will be that much higher. For potential franchisees looking at a single unit operation, we would always advocate that they project their franchise forward when in the planning stage to ensure that they have adequate capital for the growth that they expect in the near future – when dealing with multi-units, that advice is compounded.When considering multiple startups, the issue of territory and accessibility should be thoroughly explored. While the franchisors will easily be able to advise on availability of specific territories, from the franchisees point of view they all need to be easily accessible. Time spent travelling from location to location is usually not profitable and, as such, needs to be well-managed at the outset.
One of the main areas for review in a multiunit startup – or even a situation where you add on units over a period of time – is that of management. In a franchise environment, whether you have one unit or five or ten units, there is always only one franchisee. That franchisee is the owner and operator of one or more units. The area to review in this regard is how do you, as one individual owner, manage and control several units that are geographically distant from each other.
The answer would seem to be that you need to build a solid and very reliable management team. In a one-unit startup the process is usually a natural evolution, with the franchisee working in the business to get it started, and then gradually delegating more and more authority to staff members as is appropriate. As we say, that is a ‘natural’ process but not necessarily one that can be replicated if you are trying to open five stores all at the same time.
Clearly an entrepreneur taking on this type of commitment needs to thoroughly review the available human resources to ensure that there is solid and well-trained management in place at each location. Franchising again offers a level of comfort for these situations, as franchisors that offer multi-location opportunities have all gone through the learning curve with their franchisees in the past. This translates into a proven formula that the franchisor can bring to the table to assist with rapid multiple location growth.
We talked earlier about financial planning to ensure that you always have adequate resources to cover your growth. Growth may come from existing units, or you may have the opportunity to add or acquire units to your existing base. This again represents a potential exponential growth opportunity, and one which may not repeat itself. If other units become available in your area, you will almost certainly want to have the right of first refusal from the franchisor to allow you to consolidate your operations.
Working in a multi-unit environment is clearly very different from a single unit opportunity and, as such, requires that added level of up-front review. Likewise, the multiunit operation should yield a higher income level for the franchisee – the fact that it is a franchise with a proven history could also bring on the revenue stream in a shorter time frame than in a conventional non-franchised startup. One unit may be good, two or more may be even better – it all depends on the overall game plan and the lifestyle that the potential franchisee is looking to achieve.
David Banfield is the President of The Interface Financial Group, a position that he has held for over 20 years. He has been instrumental in starting Interface as a franchise opportunity and building it to its current international status. Prior to his involvement with Interface, he worked extensively in the banking, credit and factoring financial service areas. www.interfacefinancial.com