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Becoming a multi-unit franchisee

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By George Yammouni, CEO of the Bathroom Werx Group

You’ve made the decision, you’ve done all your homework, organised your finance, finished the training and now your there…running your own franchise business.

Life sure has changed a lot since you started in business – it’s exhilarating and you love every minute of it. So what happens next?

One of your options for the future is to expand your business by opening another store in your franchise network i.e. become a multi-unit franchisee. This option is being explored by more and more franchisees now as they grow their businesses to the next level.

It makes a lot of sense to use the knowledge you’ve gained in running your new business and leverage that into two, three, four or more stores inside your franchise system. It is makes more financial senses to do this than put your money into other investments whose returns you have no control over.

Plus your business has a much higher rate of return that most investments in the market place. Isn’t that why you got into business in the first place?

And a lot of Franchisors are now encouraging this trend as it makes a lot of sense to encourage existing Franchisees to expand and grow their businesses. It keeps top performing Franchisees in the system and gives them the opportunity to set goals which form part of their long term business plans.

It also gives Franchisees the opportunity to develop and grow substantial businesses which not only add to the value brand but also become huge wealth generating assets for the Franchisee.

Here are some things to think about before you go down that road.

1. Learn the business first
It is critical that you have a very good understand of the key drivers of your business. Concentrate on developing your skills in the key areas of the business:

  • managing and developing your team
  • establishing a management structure
  • ability to delegate
  • local marketing and customer service
  • continuously reviewing your performance
  • business and financial planning

As a multi-unit Franchisee your focus has to change from operational to being more strategic. And you are going to have to develop your financial skills as well as staff recruitment and management skills. If you have these skills from your previous work life experiences, you are ahead of game already.

Measure your performance against other franchisees in the system. This way you can start to gauge whether you are achieving good market penetration in your current store before you move on to your next one.

2. Organise your finance to ensure you have enough working capital to finance another location
You are going to need money in the bank or credit facilities to finance the following items to fund your expansion:

  • franchise fee
  • store fit out
  • stock
  • staff recruitment and training
  • management team to run new location
  • opening marketing promotion
  • working capital; etc.

Take the time to do this as going into your second store highly leveraged is a recipe for disaster. If you had to borrow a lot of money to start your first store then make sure that you have paid a good part of that off before starting your next store.

Sit down with your Accountant and do some serious financial modelling and make sure that you understand the cash flow implications of a second store; I also recommend break-even analysis so that you know what sales levels are required in the second store and the impact it can have on your overall profitability.

And running a profitable first store is crucial to your success as its cash flow will be very important in the early months of your new store. That is why it is crucial to have a profitable good business before you start your expansion.

3. Do your market research – again
Choosing the location of your next site is just as important as the decision you made to choose the location for your first store.

This time you know more about your business and your Customers and this knowledge is going to help your enormously in analysing and choosing your next location. Research thoroughly your site selection and work with your Franchisor to ensure you have chosen the right site.

There are a lot of factors here to consider and sometimes you just have to be patient as you wait for the right site to come up.

If it’s not right, don’t jump in – be patient as there is no hurry to jump into a second rate site. Don’t forget you already have an existing business to run.

Your Franchisor is going to be of enormous help to you here as they are going to have their own research in this area and will be able to provide you with some very important information.

4. A strong management team and infrastructure
Building a strong management team and an administration infrastructure to run your business is critical as you move into the next phase of your business growth.

This will enable you to add a third, fourth, and fifth location, etc. This structure can easily be leveraged to grow your business and add even more stores.

It provides pathways for your staff where you can provide careers for your most talented staff members offering them a variety of different roles at different locations. This will help you retain and attract great staff members.

This is probably the most expensive part of running your business but the good news is that this infrastructure can handle multiple stores and it is this leverage that will make you serious money in the long term.

The management system and infrastructure you run is the backbone of your business. Make sure that you are using the latest technology available to keep your admin costs down. It is vital that it gives you the leverage to grow the business without having to resort to increasing your staff numbers to cope with the growth.

5. Talk to your Franchisor
As soon as you start thinking about expansion, talk to your Franchisor first.

They will have the experience of helping other Franchisees that have gone down this path and will be able to provide you with a checklist of all the things you have to do.

There will also be clauses in your Franchise Agreement that govern this and you will have to check whether your Franchise Agreement allows you to do this and that you are eligible for a multi-store Franchise operation.

The good news is that Franchising is about replicating success…in many locations.

Somebody else has already done all the hard work in working out the best systems that will run a multi-location franchise – following the model is a recipe for success that reduces the risk of expansion and helps you generate more wealth for you and your family.

About the author
George Yammouni is CEO of the Bathroom Werx Group – a national Franchise System specialising in quick and affordable bathroom makeovers and renovations.

He is a 30year CPA veteran by profession and started his business as a Franchisee in 1986 after a career in merchant banking. He acquired the Franchisor in 1988 and began franchising in 1990.

Bathroom Werx renovates over 200 bathrooms every month around Australia for Customers, including the world’s leading Hotel groups and Government Housing Departments..

George is one of Australia’s leading exponents of service franchising and is a Past Chairman of the Franchise Council of Australia.

To contact the author email [email protected]