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Most investors know the wisdom of diversifying your portfolio to guard yourself from market fluctuations and selecting a multi-unit franchise might be a smart approach to implement this strategy. It offers multiple revenue streams with the reliability of a proven brand, allowing you to speculate in one entity without taking an “all in one basket” approach. This was a solid plan for one of our Ford’s Garage franchisees who even diversified into other restaurant brands.
While having previous franchise or business experience is highly helpful, it is not all the time a strict requirement for investment. Having strong management skills, a solid understanding of business operations, and the ability to learn quickly is key. If you lack direct franchise experience, partnering with experienced managers or investing in training can close the gap.
Managing multiple units requires greater management skills and well-planned systems to effectively handle operations, staff, inventory and guests. There are several issues to contemplate before deciding to implement this strategy.
1. Financial stability and growth
Advantage: Having more units means more revenue streams, which may increase financial stability and growth potential. You can spread costs like marketing, supply chain management, and staff training across multiple locations, resulting in lower unit costs and higher overall profitability. Successful units can offset underperforming ones, providing a balanced portfolio. Increased volume and the potential for long-term partnerships also offer you greater negotiating power with suppliers, landlords, and service providers.
Remember: The financial commitment is much higher for multiple units. If the group is not properly supervised, the financial burden might be significant – especially during periods of economic downturn or when some units are not performing as expected. Financial problems often arise when franchisees acquire more units than they will handle. The ideal variety of units varies depending on market conditions, financial capability and operational capabilities. However, a typical start line is three to 5 units, which allows for economies of scale without overloading the management structure.
2. Operational efficiency
Advantage: Standardizing processes and best practices across locations can improve efficiency and consistency. In a restaurant franchise like Ford’s Garage, the menu offerings are common across locations, and service standards are consistent. Our guests know what to anticipate at location B because they’ve experienced it at location A. Knowing and consistently enforcing service and efficiency standards allows for higher-level hiring and retention of team members.
Remember: The locations of your units will affect the level of support they supply to each other. Too close and they are going to compete. Too far-off and they are going to not find a way to support each other. The most significant factor will likely be the policy of your franchisor; they might have a development agreement that specifies the radius inside which recent units might be opened to avoid cannibalization and ensure adequate market coverage. Check your potential franchisor’s policy before you commit.
3. Increased brand visibility
Advantage: Having multiple locations in a region can increase your brand’s visibility and dominance in the market, increasing guest loyalty and competitive advantage. If a guest has a satisfying experience at one of your locations, they are more prone to patronize others because you trust them. It may discourage competitors from entering one of your markets.
Remember: A nasty experience in one place can turn guests away from others. Make sure your team is aware of this risk; they are a reflection of their location and the group. And most individuals know that trust might be lost much faster than it is built.
Research suggestions
To be as informed as possible before making a decision, potential investors should do the following:
- Analyze the franchise’s financial performance and growth trends, past and future. How strong is the demand for its products or services in its goal markets? Is it prone to proceed? Understand the competitive landscape and how the franchise differentiates itself.
- Assess the level of support provided by the franchisor, including training, marketing, and operational support. For me, this is a key a part of the decision-making process.
- Talk to current franchisees to learn about their experiences and challenges. Conferences like the Multi-Unit Franchising Conference offer opportunities to network, learn about recent trends, meet potential franchisors and learn from industry experts. They are a great approach to educate yourself and make informed investment decisions.
- Research your personal goals and objectives to see if your potential investment aligns with them. Investing in the same industry can provide operational synergies and easier management through familiarity with the business model. However, diversifying across industries can reduce risk and create recent opportunities.
A wise start
Investing in a multi-unit franchise can diversify your portfolio and build a significant business, but it’s crucial to have a clear understanding of your financial and operational capabilities. Leveraging the franchisor’s support and industry resources will further increase your possibilities of success. That’s why franchising is a great opportunity for investors. Most brands have established standards, systems, and procedures, so you’ll be joining an established organization that has an established operational foundation.