Expansion Opportunities in Franchising
October 9, 2013
The franchising industry has undergone many changes since the concept took off decades ago, and one of the biggest changes is the opportunity for multi-unit ownership. In multi-unit ownership, the franchisor grants a franchisee the right to operate more than one outlet within a defined territory. With this right comes the potential for serious money making along with increased responsibilities in operating your businesses.
Franchisors have high standards in regard to granting multi-unit rights. You must have a proven track record of successfully managing a business, with the ability to motivate your staff and continually seek performance improvement. If you already own a franchise, you must make a convincing argument to support your application to own multiple units. You must do the same exhaustive research about your market and competition for each unit, and expect to pay similar start-up costs to your existing unit(s).
Factors to consider:
- How well are you equipped to handle additional units?
- Is the concept popular enough to run multiple units within the same territory?
- Does the franchisor have the capital and resources to support multiple units in the area?
- Will you be able to handle the financial burden?
You may have opportunities to buy existing franchises from either another franchisee or the franchisor. Often you can get a discount on these sales, and since it is an existing business, you can examine all the records for sales, costs, and profit margins to make an informed decision. A franchise unit that has changed hands repeatedly probably has problems, and you should take extreme care in reviewing its history for several preceding years.
Another means of expansion in franchising is to acquire a master franchise license. This puts you in charge of other franchisees within an established territory. The territory could range in size from a county to a country.
A master license requires a significant investment, but offers tremendous rewards in return. With the master license, you have the power to appoint and train new franchisees, and the right to collect a portion of the fees these franchisees pay to the franchisor.
As with buying an individual franchise, you will need to do extensive market research before making an investment in a master license. And just as with the Franchise Agreement, you must carefully scrutinize all the terms so that you fully understand your obligations and rights as a master licensee. Be sure the territory is carefully defined, and consult an attorney experienced with licensing contracts. Expect some of the franchise units to flounder, and be prepared to step in to help run the operation of some units at times.
In addition to master licenses, one can also purchase the right to be an area developer. In this case, the franchisor enters into an agreement with an area developer to sell a specified number of franchises in the area within a specified time. Area developer agreements are not common in the U.S., but tend to be used more by franchises for international expansion.