Dream Big – the Pros and Cons of a Multi-Unit Franchise

Dream Big – the Pros and Cons of a Multi-Unit Franchise

Photo by Carli Jeen on Unsplash

Most individuals who plan to buy a franchise prefer the single-unit option. By taking this route, they get time to familiarize themselves with the product that they are selling and with the rules imposed by the franchisor.

A single-unit operator who is able to make a success of the business will probably witness slow and steady growth. Total revenues and profits will be limited by the fact that the business is conducted from only one location. This will put a cap on the number of customers that the franchise can handle and on the volume of its sales.

A multi-unit franchise can offer much greater potential. This model requires the franchisee to own and operate more than one outlet. The initial agreement signed with the franchisor would stipulate the number of units that the multi-unit franchisee would be required to open.

There would usually be a time limit within which this commitment would have to be met. Non-adherence to these conditions could result in penalties being imposed by the franchisor.

A person operating a multi-unit franchise would gain several advantages and could reasonably expect to earn a far greater sum than a single-unit operator. But there are several issues that you would need to tackle first. Obviously, access to adequate capital would be a primary concern. You would also need to possess strong management skills.

Here is an analysis of the pros and cons of buying a multi-unit franchise.

Pros of a multi-unit franchise

Lower average costs – A new operation would require the franchisee to incur several types of costs. Of these, many would be of a fixed nature. These expenses could be spread over multiple locations, allowing for lower average costs and a stronger competitive position. Consequently, the franchise could generate greater profits.

A multi-unit franchise would have another significant advantage. Since the business volume would be more than in a single-unit franchise, it would be possible to achieve greater economies of scale. Vendors would offer lower rates for bulk purchases. This would allow for higher margins.

Expertise in launching new outlets – During the process of setting up the first store, you could face several hurdles. You would need to familiarize yourself with the processes and practices of the franchisor. There could be delays and cost overruns.

But this learning would stand you in good stead. Your second, third, and successive outlets would be easier to launch. Your new business would gain from this expertise.

A greater talent pool – Instead of having just a handful of employees in a single location, you would have a different set of workers in each of your outlets. It would also be necessary for each unit to be run by a manager.

This would give your business a fairly large pool of workers. You could gain several advantages due to this. Since many multi-unit franchises have their outlets located in the immediate geographical area, you would have the flexibility to shuffle workers between locations. You could place employees in those units where they would be able to make the greatest contribution.

Cons of a multi-unit franchise

Higher risk – The amount that you need to invest would be several times the sum needed for a single-unit franchise. If the business does not perform as you expect it to, your losses would be magnified because you would be running several units instead of just one.

Lack of a personal touch – Many franchisees achieve great success by establishing a rapport with their regular customers. This advantage would be lost if you are a multi-unit operator. You would have to rely on professional managers and it is possible that you could face disruptions if any of them resign.

Additionally, you would not be onsite all the time. You would have to shuttle between several locations. If they are at some distance apart, you may not visit a particular outlet for days.

Meeting the franchisor’s expectations – Remember that the stakes are much higher when you run a multi-unit franchise. The franchisor will expect you to honor each of the commitments that you have made. While this is true in a single-unit situation as well, a multi-unit franchise could place the responsibility for an entire territory on you. If you fail, the impact on the franchisor will be that much greater.

Should you opt for a multi-unit franchise?

It is important to bear in mind that running a single outlet profitably does not guarantee success when you switch over to a multi-unit operation. The skills and expertise that you will need are quite different.

You will lose the ability to take care of every aspect of the business by yourself. It will be necessary to rely on managers who may function in a style that is very different from yours. You will need to develop the ability to manage others. Your interpersonal skills will be more important than your hands-on abilities.

Before signing on for a multi-unit franchise there is one other precaution that you must take. The franchisor may not have adapted its systems and procedures for a multi-unit model. For example, if they charge a fee for training your staff, should they charge twice the amount if you are planning to operate two units?

The decision that you finally make will depend upon the amount of capital that you can arrange and the degree of risk that you are willing to bear. A well-capitalized and efficiently run multi-unit franchise can provide you with far greater sales volumes and profits than a single-unit franchise.

But before taking the plunge it would be prudent to conduct a detailed self-evaluation. You should go ahead with your plans only if you are convinced that you have the skills and competence that are necessary to manage a venture of this type.

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