How to Choose and Purchase Multiple Franchise Units
01 | Introduction
Investing in a reputable franchise is widely considered a worthwhile investment, even at just one unit. For one thing, you typically receive ample support from the franchisor, including sophisticated marketing strategies that are proven by hundreds or thousands of locations. Purchasing more than one unit of the same franchise adds even more benefits to the list. That's multi-unit franchise owners control more than half of all franchises in the United States.
- Sharing resources and balancing revenues offers more protection than a solitary unit.
- Returns on marketing, inventory, and training are generally greater over a larger scale.
- As an asset, you become more efficient and resourceful with the additional experience.
- You gain influence as a leader in your community and organization.
The disadvantages of multi-unit ownership are what you’d expect from a larger investment.
- It requires more capital.
- There’s greater risk involved.
- It will probably take longer to break even.
That said, multiple units are generally more profitable than one, so you’ll have to weigh the pros and cons for yourself.
This guide will take you through the search process to help you refine your list down to brands that align with your values. Then, you’ll get a step-by-step overview of the purchase process so you’ll know what to expect when you contact your favorite brands.
02 | 4 Things to Know Before Getting Started
Portals are platforms where you can gather information about franchises and search franchise databases for various criteria like industry and location. Unfortunately, you won’t find anything juicy, like financial data, on most sites.
Franchise consultants or brokers can be invaluable in gathering information and navigating the purchasing process for multiple units. Consultants make a commission when their clients purchase franchise units in their inventory. Be wary of consultants who pressure you or seem aggressive.
Financial Disclosure Document (FDD)
The FDD is where you’ll find past financial performance data and financial projections for a unit in your territory (Item 19). You probably won’t get your hands on the FDD until you’re further along in the sales process.
One of the most common questions from potential buyers is, “How quickly will I make my investment back?” The Federal Trade Commission (FTC) prohibits franchisors from making claims about expected profits of any unit.
03 | Compile a Preliminary List of Desirable Franchises
The US is home to thousands of franchises.To narrow down your choices, start with your most important criterion, and make a list. For example, not all franchises allow owners to have more than one unit. Your preliminary list might comprise franchises that allow multi-unit purchase.
Consider your long-term goals and current position as your list evolves and dwindles.What will you qualify for, including loans, accounts, partners, etc.? What are your strengths? Weaknesses? How much support will you need from the franchisor?
One of the most important considerations is how involved you want to be in the day-to-day operations of each location.
Depending on the type of franchise you’re interested in, you can run one or two locations working ten to 20 hours per week. Be sure to discuss ownership models with your consultant. Confirm your expectations with the franchisor early in the sales process and with current franchisees during the diligence stage.
If you’re having trouble narrowing your list, consider these criteria recommended by Down to Small Business:
- Business-to-business rather than business-to-consumer
- Service rather than product
- Recurring revenue and low churn
- Low staff requirementsVirtual (no physical location)
- Strong value prop
- Low competition in your area
- Short sales cycle
04 | Franchise Consultants Are Free – So Use Them!
A franchise consultant’s first job is to learn what your ideal business looks like.
Then, they’ll investigate available franchise opportunities and help you refine your list to the most desirable choices. Typically, franchise consultants receive a commission from the franchisor you choose, so their services are free to you.
As far as consultants go, you’d be hard-pressed to find a more knowledgeable and enthusiastic team than Clear Summit Group. We’re partners who work together to maximize growth and returns for all of our teams and franchisees. The seven brands in our portfolio have locations worldwide and are leaders in their respective industries with impressive financial performance.