A Guide to Understanding Multi Unit Franchises
Franchising is an excellent opportunity for aspiring or serial entrepreneurs to open and operate a business without starting from scratch.
Franchisors provide everything you need, from store layout to computer systems, branding assets, and more.
Given the proven success of franchising, many franchisees are now turning to multi unit ownership for revenue diversification.
Since more than half of all franchisees in the U.S. are multi unit franchise owners, it might be a good idea to explore this option.
What Is Multi Unit Franchising?
Multi unit franchising is when a franchisee owns and operates more than one franchise location of the same brand. Instead of running just a single outlet, a multi unit franchisee manages two or more units, often within a specific region or territory.
Think of it as a way to grow your business within a proven system, but on a bigger scale.
In a traditional franchise agreement, a business owner operates one unit under the brand’s guidelines. With multi unit franchising, a person or group agrees to open several locations, usually over a set period.
For example, you might open a McDonald’s in a town large enough to support more than one location. So you open the first location with plans to open a second one in two years.
Think of it as a partnership between the franchisor and the franchisee. The franchisor provides the tools and support to help run multiple units successfully, and the franchisee agrees to follow the brand’s business model for all its locations.
Benefits of Multi Unit Franchising
Whether you already run a franchise or are exploring the multi unit franchise market for the first time, here are some benefits you could enjoy.
Increased Revenue Potential: Owning more than one franchise location gives you the opportunity to make more money. More units means more sales and the chance to increase profit margins.
Improved Local Area Development: Several units in a specific area can help you dominate that market. It’s easier for customers to find you, and you can build brand loyalty faster when your brand is everywhere.
Operational Efficiency: With multi unit operations, franchisees can leverage economies of scale and share resources, such as management teams, human resources, suppliers, and marketing strategies, making business operations more cost-effective.
Relationship with the Franchisor: Franchisees with multiple units often have a closer, more strategic relationship with the franchisor. They might get extra support, input on decisions, or even access to exclusive opportunities.
Potential for Growth: Once you’ve established yourself as a successful multi unit operator, franchisors may offer even more opportunities for growth. This could mean expanding into new territories or investing in new brands, further enhancing your business portfolio.
Challenges of Multi Unit Franchising
While the idea of multi unit franchise ownership may conjure images of wealth and success, it's important to be aware of the challenges it can bring.
These challenges can include the following:
More Complex Management. Running multiple franchise systems is far more complex than managing a single-unit franchise. You’ll need a strong leadership team and will likely have to step away from daily operations to focus on high-level business strategies.
Higher Financial Risk. While the profit potential is higher with multiple revenue streams, so is the financial commitment. Opening multiple franchise units requires significant upfront capital and ongoing investments to ensure each location runs smoothly.
Maintaining Consistency. One of the biggest challenges to operating multiple franchise businesses is ensuring they all deliver the same quality and customer experience. As you grow, keeping every location aligned with the franchise brand’s standards can become more complex.
Time and Stress. The more units you have, the more time you need. Managing multiple locations can be stressful, especially when solving problems simultaneously in different locations.
Hiring and Training. Staffing can be more challenging as you’ll need to hire and train employees for each location. This means more effort in recruiting, onboarding, and retaining employees who are critical to your success.
How to Buy a Multi Unit Franchise
Here’s a breakdown of the steps, key considerations, and financial aspects to consider when exploring a new business opportunity.
Although very few things are set in stone, the flow of purchasing a multi unit franchise could look like this:
- Start by researching franchise brands that allow or encourage multi unit ownership. Look for ones with good brand recognition that fit your interests, business goals, and market demand in your area.
- Contact the franchisor to discuss your interest in buying multiple units. They will explain how their multi unit franchise model works and their expectations of franchisees.
- Review the Franchise Disclosure Document (FDD)—the legal document that outlines all the important details about the franchise.
- Meet with the franchisor to discuss your plans and make sure you’re a good fit for the business.
- Once everything is clear and you’re ready to move forward, you’ll sign a multi unit franchise agreement. This legally binds you to open a specified number of units over a set period.
- After signing, it’s time to start setting up your locations. This might involve finding the right location, hiring staff, and working with the franchisor to ensure each unit meets their standards.
Key Considerations During the Buying Process
- Territory: Check whether your agreement includes a specific territory or region where you’ll have exclusive rights to open locations. This can help you avoid competition from other franchisees.
- Franchise Agreement: The multi unit agreement is different from a single-unit one. Be sure to understand the timeline for opening each unit and any conditions you must meet.
- Franchise Support: Ask the franchisor about the level of support they offer for multi unit owners. This includes training, marketing, and ongoing operational support.
Financial Considerations and Investment Requirements
The initial investment for a multi unit franchise is significantly higher than for a single franchise location. This is because you’ll need to pay franchise fees for each unit you plan to open. These fees cover the right to use the brand’s name, business model, and systems.
In addition to franchise fees, you’ll need to account for real estate costs, which can include purchasing or leasing property depending on your business plan. Then, there’s the cost of constructing or setting up each location, from building the physical space to acquiring the necessary equipment and fixtures.
The larger your expansion plans, the more substantial these upfront investments will be. Creating a budget before you start is essential. And sticking to your budget will help prevent financial strain as you grow your business.
In addition to the initial investment, running a multi unit franchise comes with recurring expenses.
Depending on the franchise unit, you may have to pay the franchisor royalties, typically a percentage of your sales. These royalties contribute to ongoing support from the franchisor, like marketing efforts or system upgrades. You may also need to contribute to the brand’s marketing fund for advertising at a national or regional level.
Beyond these fees, each location will have ongoing operational costs such as employee salaries, rent, utilities, and supplies. These costs will increase as you open more units. That’s why having a clear budget and financial plan is important to ensure each location stays profitable.
Financing Options for Multi Unit Franchises
If you don’t have all the capital upfront, there are several financing options to help fund your multi unit franchise:
- SBA Loans The U.S. Small Business Administration offers loans for franchisees, which can help cover startup costs.
- Franchisor Financing. Some franchisors offer financing plans or can connect you with preferred lenders.
- Third-Party Lenders. Banks or other financial institutions might offer loans for franchise businesses, especially if you have a strong business plan.
Ready to Find Your Multi Unit Franchise?
Multi unit franchising can be a powerful way to grow your business. It offers the potential for higher revenue, better market presence, and long-term success.
While there are challenges, like managing multiple locations and higher financial commitments, with careful planning and support from a franchisor, many entrepreneurs find the rewards worth the effort.
If you’re ready to explore multi unit franchise opportunities, take the next step and search franchise opportunities on BizBuySell.