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Transitioning from single-unit to multi-unit franchise ownership is one of the most consequential decisions a franchisee can make. The decision must be made for the right reasons with the right management team, advisors, and financial foundation at the unit level. It also requires a sound investment plan for expansion, including working capital, and the right franchisor with a proven multi-unit track record.
Too often, the decision to expand from a single-unit franchisee to a multi-unit franchisee is driven by an unrealistic development schedule that the franchisor and franchisee agreed to at the outset of the franchise relationship when the franchisee knew nothing about the operation of the franchise business and the franchisor knew little about the franchisee’s capabilities to operate multiple locations. The result is a franchisee who might be having some level of success with their existing location but ends up with two struggling locations because they don’t have the financial, operational, and team resources to own and operate multiple businesses. In too many instances, both locations suffer, which isn’t a good outcome for the franchisee or the franchisor. The bottom line is don’t expand if you are not ready with the right operational, financial, and human resources.
What often gets overlooked in this decision is the legal and contractual weight behind expansion. Development schedules are not just operational goals; they are binding commitments that can place a franchisee at risk of default if performance or timing falls short. Expanding too quickly without the proper capital, team, or infrastructure can trigger real consequences under the franchise agreement. Multi-unit growth, done improperly, can turn a successful operator into a distressed one, putting units and contractual standing at risk.
Let’s identify a few difference makers for franchisees and franchisors to consider in enhancing the likelihood of successful single-unit franchisees transitioning to successful multi-unit franchisees.
The most common mistake many franchisees make is that they agree to an unrealistic development schedule before they fully understand the franchise business and what it takes to drive unit-level profitability. An unrealistic development schedule does not benefit the franchisee or the franchisor.
Instead, the franchisee and franchisor should consider a reasonable development schedule with required milestones and conditions that go beyond requiring a franchise to open an additional location every 12 to 18 months regardless of other relevant factors. Any franchisee who encounters a franchisor (especially an emerging franchisor) who insists on a misguided development schedule should walk away.
The most successful franchisees are those who have substantial franchise experience and/or substantial business ownership in the geographic area in which they will operate. For successful multi-unit expansion, it’s crucial to understand:
These factors are even more important if the expansion is multi-brand rather than multi-unit, where the franchisee is crossing over to a new brand as part of their expansion.
A successful multi-unit franchisee must understand their role as the leader in the organization. You can no longer simply be an owner/operator of a single-unit business. Strong multi-unit leaders know their unit-level economics and have a keen understanding of the financial and human resources it will take to successfully operate multiple units.
Undercapitalization for the next unit and failure to build a management team are primary reasons multi-unit franchisees fail. As a multi-unit franchisee, you must have the personal capabilities and resources to develop a sophisticated understanding of operating the franchised business at multiple locations, which is far different than operating at a single location. It’s important to have a strong business reputation in the local market (you are the face of the brand) with the resources necessary to succeed (i.e., the capital to establish and grow the brand through multiple units as well as build an experienced management team).
Successful multi-unit franchisees make the time to be sure their leadership skills are a top priority because those skills do not just show up on their own for most individuals. Develop on your own with a coach or professional advisor. Request that your franchisor provide support in this area, which is just as important, if not more, as the franchisor’s operations manual or marketing programs. Connect with other multi-unit franchisees one-on-one or as part of a peer performance group.
A leader’s attitude is a difference maker in driving results. Emphasizing a culture of collaboration will produce far better results than a command-and-control approach, where the employer is less willing to view their employees as key stakeholders in the organization. Your employees must understand the franchise business and how to deliver on the brand promise to customers.
Successful multi-unit franchisees effectively recruit employees and then retain them by providing support and training, enabling employees to comply with the franchisor’s system standards and brand promise.
Please note that your employees will not have an undying devotion to the brand if you don’t. If you don’t, you must fix that before transitioning to multi-unit franchise ownership.
Brian Schnell is the chair of Faegre Drinker’s franchise practice. He is passionate about franchising and has more than 35 years of experience focusing on finding solutions to challenges and opportunities for clients. He is also the chair of IFA’s Franchise Relations Committee.