If you are considering expanding especially in a localized region, multi-unit franchising is an attractive proposition, says Safwan Adam
The business of franchising is ever growing, with franchisees constantly opting to
shift to the multi-unit model. A recipe for swift growth and expansion, multi-unit franchising is an excellent way for a business to develop their presence and multiply
their holdings.
Multi-unit franchising differs from the traditional franchise model as one franchisee operates multiple franchise businesses, usually within the same region. The popularity of the multi-unit model has been on the increase in recent years and, according to the 2016 franchise report by the British Franchise Association (bfa) and NatWest, approximately 29 percent of all British franchisees now own more than one unit, with 50 percent proposing to open more.
Additionally, at least one in five of the remaining 71 percent of British franchisees have plans to buy another franchise soon. Having operated a multi-unit, multi-brand franchise model for several years, it has become ever apparent that this option is not for everyone.
There are several factors, such as infrastructure, resource, appetite for growth and franchisee-franchisor relationship that franchise partners must consider when growing their holdings. Traditionally, multi-unit franchisees operate several units within one geographical space.
However, certain franchise partnerships have been known to transcend boundaries and borders. Multi-unit model works optimally within the goods retails and F&B sectors, as growth is optimal within these markets.
This model may not specifically apply to the service industry; the advantage of growing within the service sector is that a second physical set-up is not necessarily required to harness a wider market, thereby making a multi-unit model unnecessary for expansion.
There are many benefits of the multi-unit franchise model for both the franchisor and franchisee, which contribute to its attractiveness, leading to the growth in the
multi-unit trend.
Strong relationship
Some benefits are apparent: for franchisees the easiest growth stems from familiarity and replication, reducing the time spent on brand immersion and training.
With a team in place, it is easier to develop within a known realm. A strong relationship with banks can ease the process of securing finance for additional units.
A well-fortified relationship with the franchisor means quicker growth given the existence of trust and communication.
Growth into new concepts and sectors can be costly and may not be beneficial in the long run. Similarly, franchisors benefit from brand growth with the ease of managing fewer franchisees owning and operating their units.
Whilst it is attractive to grow without a ceiling and continue to multiply holdings, it is easy to lose sight of important factors. An appetite for growth is not sufficient to secure success when growing to a multi-unit model.
7 considerations before growing your portfolio:
1. Finance Money is, of course, the first question. Will branks be willing to lend you sufficient funds to expand? Do you have sufficient cash flow to continue running your current holdings whilst expanding? These are the basics questions franchisees must answer when considering growth.
2. Resource When expanding to a multi-unit model, existing units need to continue to run at a similar level. Franchisees need to ensure they have the
right team in place to run the existing unit to standard whilst they focus on expansion. Letting go of control, and empowering your team to take charge is an important part franchise growth.
3. Losses It is common knowledge that franchisees expect a depreciation in business for their initial unit as they expand. What needs to be considered is
the size of that dip – a significant depreciation can jeopardise both businesses simultaneously and affect franchisor relationships.
When expanding a brand, it is important to try and restrain the dip in performance to about 10 percent. Anything more significant than that could have significant ramifications for the business. Franchisees can mitigate this with checks and balances targeted at empowering staff to take ownership for the unit’s performance. These can include age-old management techniques such as bonus schemes, staff incentives and team-building exercises.
4. Own Skills & Expertise The most important consideration, in my opinion, is the franchisee’s ability to let go. Some multi-unit owners do not have the
mindset to let go. The most important aspect of growth is empowering staff to make correct decisions in a constrained environment. Reneging control to promote staff accountability and ownership is the only way a franchisee can handle the added pressure of unit expansion.
5. Franchisor Relationship It goes without saying that the multi-unit model is only available to those in strong relationships of trust with their franchisors. Trust, however, can be a double-edged sword in the business of multi-unit franchising. Where franchisors entrust franchisees with running the brand, they can often slip into a comfort zone, sometimes taking their hands off the post. This is where communication is very important: multi-unit franchisees need to be much more pro-active when communicating with their franchisors, highlighting achievements and successes adequately so the franchisor is not just left to juggle numbers.
6. Capacity for growth Expanding for the sake of expanding is not good enough. Franchisees must gauge the market’s appetite for the brand, assessing competition and auditing demand for the brand’s offerings. Multi-unit franchising is not for vanity and quantity is not the reward.
7. Infrastructure Whilst strengthening the front of house teams at the unit is crucial, it is vital to build a solid back of house too. Franchisees need to secure the right people in the right places, from admin and human resource staff to loss prevention teams, in order to stay ahead of the curve. Similarly, it is important to resource adequately, a common problem is over-resourcing to the point where the business ends up haemorrhaging cash flow.
Whilst multi unit businesses are a challenge within themselves, franchising simplifies the process. Franchising allows franchisees to concentrate on operations, whilst the franchisor builds, develops the brand and markets it for you.
5 Benefits of Multi-Unit Operating
1. Rapid growth
2. Easier access to attain funding
3. Multiple revenue streams
4. Spreading risk
5. Increased stability for the company with multiple layers
The fastest way to grow your portfolio is to find the best sites and a franchisor that is as ambitious as you. Multi-unit franchising is like planting seeds and watching them
grow; the more you plant the more you yield.
ABOUT THE AUTHOR
Safwan Adam is a young entrepreneur who acquired his first franchise, CeX, at 25 years of age. Since then he has successfully opened five more CeX’s all across London. Having graduated from City University and qualified as an Aeronautical Engineer, Safwan directed his attention to franchising six years ago, having since built his company into a multi-unit company alongside his brother. In search of new challenges, Safwan expanded his repertoire to other fields and now runs a multi-unit, multi-brand company linked with several brands. Safwan believes in inspiring and empowering staff to take ownership of their own performance and that of the business at large, a leadership mentality that has served him well.
