Great news … we are not going through the Franchise Disclosure Document in this post, we are actually going to be covering something that you will likely be exposed to if you are investigating a franchise, if the franchise has this opportunity available for you, and that is what is a Multi-Unit Franchise.
We will walk through what a multi-unit franchise is, and how to evaluate a single-unit franchisor versus a multi-unit franchisor. We would like to start by relating it back to our own franchise that we own today, and how we kind of evolved through that process during our franchise early days, and I'll say even in our pre-franchise days.
Key considerations that somebody would want to know about and looking at a single-unit franchise only
So a single-unit franchise is simply one unit, or one territory and for a lot of people looking at franchises, it can be a very smart way to start. It's kind of like dipping your toes in the water, or if you're going to be an owner-operator and you just want to kind of own your area and do something on a small scale. In addition, if you just have limited resources but you're so committed to being a business owner, being a single-unit owner can be a great way to start. You could grow into more later.
Reasons why somebody would consider not just a single unit but look at a multi-units of the same franchise
We really encourage our candidates to really consider multi-unit ownership for going out of the gate strong, and there are many reasons that you would want to consider multi-units upfront. It's a very smart decision if you are committed to the franchise that you're going to be owning and operating. We know from doing many territory checks for our candidates, that some franchises that sell out fast, especially in really hot areas. It's a combination of a hot growing area and a very hot franchise. If you don't snag the available territory now it's likely going to be gone (sorry!).
The good news is that for multi-units typically you're not paying all this exorbitant money upfront. You're paying for the one territory/unit upfront and then you'll pay ancillary for the additional franchise territories/units almost always at a very discounted price. Here is the kicker, depending on the type of franchise you don't have to buy all the equipment, the real estate, the staffing, or everything you need eventually down the road to operate the new territory/unit, and you certainly don't have to pay all that on day one.
So, looping it back to our franchise. When we were looking at our franchise, we went into it with big dreams, I would say, and we didn't want to be limited to just one unit. In our franchise, it wasn't really territory based, it was what they refer to as units based. Each unit would be, in our case, either a storefront, it could be a mobile food truck, or it could be what we refer to as a mobile tiki bar that we would take out and set up just about anywhere. So each of those represented a unit and when we looked at it, we were like, well, I don't think one unit's going to work for us. We really planned to try to make this into a pretty good income stream. So one unit is probably not going to give us what we needed.
Fortunately, we started off with a three-unit because we outgrew that easily in the first six months. We had three units in the first six months. And eventually, we ended up, and we talked about this in previous episodes of the Franchise Disclosure Document about transferability. We had another franchisee approach us that had an Empire Builder that they were willing to transfer to us, which was 10 units in our franchise. So we ended up acquiring 13 units in the first year that we were in our franchise, a long way from a single unit.
Now in other franchises, these units may be represented by different territories (or locations). It’s a very true reality that if you're in a hot area and you're going into a franchise that's popular or “a hot franchise” and you really believe that eventually, you're going to want to your operations beyond just that one single area, then you probably want to look at a multi-unit franchise, or in this case, a multi-territory franchise.
Here's an example. You are right here (pick a great location or zip code in your area), you own this territory. If you don't claim the adjacent territories/zip codes and it's a good hot-growing franchise, somebody will probably come in and take it. Do you really want that? You might then end up with these adjunct non-connected territory areas. So, if you're committed to growing and dominating, it just makes so much sense to claim those territories up front.
Think about it, logistically it makes so much sense. If you have a territory right next to your territory, as mentioned, it's great because if many franchises you don't need a separate set of operations or buildings or real estate to operate in the other territory that you acquired as part of a multi-unit investment. What can happen is if you don't lock in that adjoining territory, and often does, you could still probably get other territories, but it could be 30 miles away, it could be 50 miles, or it could be another city in some cases.
Therefore, it’s really important that you at least understand what multi-unit means when you're looking at franchises. It's probably a good idea to ask questions regarding do they have multi-unit available availability in your franchise investigations. If so, you should highly consider possibly stretching a little bit and acquiring a multi-unit franchise if you really believe that you're going to go pretty hard and fast (all in) into that particular franchise.
One huge benefit is that multi-units often give you a much better saleable asset. At the end of the day, a lot of people look at franchising because they're looking to grow it and have something at the end of the road that's a sellable asset. Also, when you think of the economies of scale, it just makes so much sense because let's say a one-unit franchise may be $30,000, but then you can get two for $50K and then you might be able to get 3 to 5 for just an additional $10K more. Most candidates that we work with need some kind of funding anyways to acquire a franchise, and if you stretch just a bit and can get approved for just that little additional bit more, 10, 20, $30K more. You are usually better off getting that territory now because if you only commit to the 1 and then in 3, 4, 5 years you're doing well and you decide you do want to grow, well guess what? You're going to have to start all over again with another single unit.
Obviously, the economies of scale make a lot of sense in multi-unit franchises and in the asset category when you acquire multiple territories, somebody coming in from the outside is probably looking at it in some ways the same way you might be. Hey, I'm not just buying this one little territory, I'm buying this whole area and getting 10 of these as part of this transfer of ownership of this franchise. Therefore that asset, in general, would probably be worth more in that particular type of transfer.
Again, you should really understand what multi-unit means, depending on the franchise that you're looking at, do they have it available? Do they offer multi-unit? Some of them do not and will only let you start with a single unit. You have to earn your wait and/or earn more units. Some of them actually have some pretty good promos where they'll actually offer, if you buy one territory, we'll give you a second one free. If they do, you might want to take them up on that offer because getting these extra quote-unquote units or territories can be really important in the growth of your franchise and the operations down the line.
If you're coming in with an empire-builder mentality, and you're not just looking to do a business to buy yourself a job, you're looking at multi-units because you want to grow and scale and become and dominate an area. By you sticking your stake in the sand and saying, we're going to own this area, it's actually a great way to kind of keep the competition out. If you're with a really good franchise that has good marketing systems in place, you guys are going to own and dominate the area. So think big, think empire builder, think multi-unit.
We highly encourage you to take a look at multi-units when acquiring a franchise. If you're investigating a franchise, even if you don't decide to go this route, it's good to know what's available. If you would like any assistance in learning more of the benefits of multi-unit franchises please feel free to reach out.
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I’m Stacey Riska aka “Small Business Stacey”, your franchise placement specialist. I help aspiring business owners find the PERFECT franchise so they can get to the next level in life and business.