Most franchisees have started their franchise businesses as single-unit operators. In many cases they either are the day-to-day operators or at least intimately involved with every detail of the daily operations. This means they are technically competent technicians and on-site managers.
Many envision the day when they will expand and become a multi-unit operator. As exciting as the prospect of this is, nothing affects profitability across multiple units more than making the right assessment of skills, abilities, structure and business plans, including financial capabilities. Just because a franchisee can successfully operate a single unit does not mean he or she will repeat the success with multiple units. Those who enjoy working in the business’s daily operations, as opposed to managing, often remotely, should carefully review the content of this article. If you are currently a multiple-unit operator, then you have likely already experienced the roller coaster ride of making good or bad decisions in the areas I am about to cover. As a multi-unit franchisee in my 26th year of operation, I’ve learned many of these lessons by making mistakes.
Operating multiple units generally requires a dramatically different skill set. An unprepared operator will quickly become overwhelmed and could ultimately fail. Let’s explore the areas that will lead to multi-unit profitability.
Among the most common mistakes is trying to grow too fast. This is the case where initial success can embolden the franchisee to be overconfident and forge ahead assuming each successive expansion will be as successful as the initial franchise. In the words of former Federal Reserve Board chairman Alan Greenspan, this equates to “irrational exuberance.”
We all want to believe that success will be repeated and this can be true with careful assessment, planning and analysis. Let’s take a look at what should happen at this point.
First, the initial success should be followed by careful analysis of your organization, including, but not limited to, an honest assessment of your skills, the depth of staff, available capital resources, and overall success of the franchisor. Keep in mind the No. 1 reported reason for multi-unit failure is not having enough capital. In the current economic environment, you must have reserve capital resources and a contingency plan.
One huge advantage of the franchise business model is the ability to talk with other franchisees about everything. Find out if your success is universal or unique and why.
Given that you do not find red flags, the next step is to consult with your internal team of advisors, including legal, financial, accounting and at least one trusted business advisor. Then take the proverbial “look in the mirror” and ask yourself if you are ready for expansion and its inherent risk.
Next, consider the transformation it will take organizationally and personally to assure a profitable multi-unit operation. The business plan will need to include who will replace you in the day-to-day operations, as you have now promoted yourself to other duties. Make sure you have the right people, and that they have the needed skills. Have a contingency plan that will allow you to continue to work on expansion and leading your managers, even if a key employee leaves.
Your own management style now becomes critically important. Consider where you fit in the traditional authoritarian, consultative, or participative style, or how you apply a healthy mix of these. If these terms are not familiar to you, then make reading several management books a top priority.
It is assumed at all stages of this process that a formal business plan is being drafted and redrafted as new information is either developed or discovered.
Communication becomes much more critical as your franchise business expands. This includes having a plan to facilitate two-way communications with your managers on a daily, weekly or monthly basis. This is changing with available technology. For example, my managers and I communicate with PDA text messages throughout the day, by phone as needed and scheduled weekly meetings, via conference call when in-person communication is not feasible. Some of this plan will be affected by the proximity of your locations; across town requires a different plan than locations 50 miles or more apart.
While some franchise systems have excellent computer and data management systems available, many do not. In multi-unit management, you must have a state-of-the-art computer system that provides easy access to your key operational statistics, as well as managing key payroll and accounting reports. This is worthy of careful research and planning. Remember other franchisees and vendors associated with IFA can be helpful in obtaining what you need. Your business needs a good computer and software network system, but with current technology, most of what you need is standard and affordable.
Telecommunications setup will likely be one of the larger frustrations during expansion-related installations. While performance by telecom providers has improved, you can count on some missed installation deadlines. Identifying a good, reasonably priced networking and computer service provider should be high on your priority list. Remember your data becomes your lifeline to manage remote sites.
Legal advice is another area where cutting corners can result in big problems later. Many times businesses think hiring an attorney as something to do when there is a problem. Single-unit operators often get by with a minimum amount of attorney time. Things do become more complex with multi-unit expansion. For example, you must decide if you are going to operate as a single corporation or multiple corporate entities. In reality, this should be discussed with both your CPA and attorney. Multiple leases become more critical and difficult to manage and personal guarantees need to be limited. Also, most franchise agreements are written for an individual as opposed to multiple franchisees. Certain aspects of these may need to be reviewed and discussed with the franchisor. Also, multiple-unit development agreements can put a franchisee in peril should business or economic conditions change unexpectedly. These need to be considered very carefully so that existing units are not placed in jeopardy. This is a case where all of your advisors should be involved in the discussion.
If you began reading this article expecting a magic bullet to ensure profitability across multiple units, I am sorry to disappoint. While some of the items affecting profitability can be applied to help ailing operations, nothing can fix fundamental fl aws in initial execution. For this reason I am a strong advocate of careful planning and realistic expectations. Operating multiple franchise units requires complex and extensive management skill. A few people, through experience and inherent ability, may be able to succeed in owning and operating multiple franchise units. Most operators, however, will need to polish their management knowledge and skills through formal education and training before biting the multi-unit apple.
Barry Miller is a multi-unit operator of Sylvan Learning Centers and Prometric/ETS Testing Centers in Ohio and Pennsylvania. He is also an IFA Board member and past IFA Franchisee Forum chairman. He can be reached at firstname.lastname@example.org