Let’s say you’ve already purchased a franchise. It’s been up and running for a couple of years and things are going really well. Your profits are actually so good you’re thinking about ways to grow your business even more. In franchising, you have a few distinct choices to grow. They include:
- Adding additional locations
- Adding territory
- Adding space
- Adding employees
- Adding other franchise brands
What should you do? It depends.
Who Are You?
Before you decide your next step, it’s important for you to know who are. I divide franchise owners into three groups.
Sitters are franchise owners who are content with one franchise location. Most of the time, that’s what they planned on having from the beginning.
Expanders want to expand. They planned on it either before they purchased their franchise or while they were doing their due diligence. They’re the ones who are constantly thinking about ways to expand their franchise businesses.
The Not Sure’s
These franchise owners aren’t sure if they should expand. As a matter of fact, they’re not even sure they want to expand. They tend to have lots of battles inside their own heads concerning growth.
Which one are you? My advice for Sitters and Expanders follows.
My Advice for Sitters
If you’re content with your single franchise location there’s no reason for you to expand, especially if you're hands-on person with your franchise business. If you’re spending a lot of hours running your franchise, you probably won’t have the time or the energy to give an additional franchise business the same level of time and energy.
Having said that, things can change. Maybe you’ll end up turning into an Expander one day.
My Advice for Expanders
Even though you've decided you wanted more than one franchise business, don’t take this decision to expand lightly. Make sure you’ve covered all your bases. Ask yourself the following questions before getting too far down the road.
1. Should you stick with the same franchise concept?
It’s typically easier if you stay with the same franchise brand when you expand. So if you’ve bought a pizza franchise, I recommended buying another one of the same brand. After all, you’re already familiar with the brand, their products, and their marketing. And, since you’ve already opened one, it should be a little easier to open a second one-and a third one, since you know what to expect.
2. Do you have the capital to finance another franchise?
You’ll probably need financing to open a second franchise. Go to the lender you used the first time around. They’ll want to see evidence of your profitability with the first one before they approve another business loan. However, since they approved you once already, you should have some leverage.
But, don’t overextend yourself financially. Some risk is okay, but a lot of risk may not be. Work with your accountant to make sure the numbers add up before you move forward.
3. Should you buy an existing franchise or start a new one?
Sometimes there are franchises for sale in or near your territory. They’re usually not advertised, so you’ll need to contact franchise headquarters to find out if any other franchisees are ready to sell.
Important: If you buy an existing franchise, make sure you know why it’s being sold.
If the issue is lack of profitability, you’ll want to have a specific plan in place to increase revenue and, eventually, profitability.If the issue is the franchise is in a bad location, there may not be a lot you can do to turn it around.
4. Do you have the time to commit to another business?
Initially, in your new franchise, you’ll have to do everything you did for your first franchise operation. You’ll be hiring, training, stocking inventory, and doing the marketing. You won’t be able to be at your first store as much -- especially in the beginning.
After you get your second location up and running, expect to be running back and forth between both franchise locations. It takes a lot of time to operate and manage multiple franchise locations. Make sure you’re committed to doing it.
Will it be worth the investment?
It’s not going to be cheap to open additional locations. Your new location probably won’t be profitable for a while. As you may have experienced with your first franchise, it tends to take several months (at least) to recover your initial investment and start moving toward profitability.
When it comes to franchise business ownership, it’s great to have choices when it comes time to expand your franchise business, if that’s what you want to do. But remember, you don’t have to expand your franchise business.
The Franchise King®, Joel Libava, is a franchise ownership advisor. He’s the author of Become a Franchise Owner! (Wiley Publishing) and owns and operates Franchise Business University. Joel contributes a blog post to Franchise Direct monthly.