Whether you are an established or new business owner, you will likely want to focus on one franchise business when you first start out as a franchisee. This can maximise your chances of success and give you time to learn the ropes for that industry. At a certain point, however, you might become interested owning multiple franchises.  If you wish to do so, you can:

  • acquire additional franchises within the same network (and become a multi-unit franchisee); or 
  • purchase franchises from other businesses (and become a multiple single-unit franchise holder). 

At this point, you will likely be wondering whether you can do this, and if so, whether you should. This article will explore:

  • the benefits of multi-unit franchising;
  • the risks of multi-unit franchising; and
  • some of the considerations that you should think about before owning multiple franchises in the same network.

Franchisor Approval

Your first step should be to find out whether you, as a franchisee, are allowed to own other franchises. The franchise agreement that you signed when you joined the franchise may expressly prohibit you from owning other franchises or becoming a multi-unit franchisee, as the franchisor may want to encourage competition within the network. If multi-unit franchising is allowed, you may still be required to:

  • seek consent from the franchisor (typically in the form of written approval);
  • pay increased or additional fees for acquiring the new franchise;
  • complete additional training; and
  • provide additional information or evidence relating to your financial and commercial ability to manage the new business.

If you are not complying with your current franchise agreement, this may allow the franchisor to prevent you from becoming a multi-unit holder. You should be aware of potential issues of non-compliance before you start this process.

What Are the Benefits of Multi-Unit Franchising?

If your franchisor allows you to purchase additional units, the benefit you get from having these franchises in the same network may be greater than the sum of the individual benefits. The key benefits are:

  • network influence;
  • commercial efficiencies; and
  • business oversight.

1. Network Influence

Owning a multi-unit franchise means you become a bigger fish in the same pond. Owning more units gives you greater influence in the network, as voting rights on decisions within the network (for example, whether to audit the marketing fund) are attributed to the number of franchise units a franchisee holds. Therefore, if you have several franchises, you have more votes and greater influence over the network.

Being a bigger player in the network also gives you better control indirectly, through increased bargaining power. As a multi-unit holder, you will be more invested in the network than other single-unit franchisees. This means that you can encourage changes or improvements by working directly with the franchisor. Potentially, this could allow you to negotiate a reduction in fees or amendment of other terms of your new franchise agreement to better suit your business interests.

You can also use this additional leverage to address issues that you or other franchisees are facing, as your voice will be louder in the network for every additional franchise unit you own. 

2. Commercial Efficiencies

When evaluating whether to become a multi-unit holder, it is worthwhile to investigate the commercial benefits you can gain from this arrangement.

You should consider whether you can:

  • negotiate better wholesale prices or bulk-buy discounts from your chosen or approved supplier;
  • share expenses between your franchise units for storage or additional training; or
  • run coordinated campaigns or promotions between your stores.

There may also be other efficiency gains that you can explore with your increased scale, such as:

  • sharing of rented or purchased equipment; or 
  • increased mobility of staff members between your franchises. 

Other multi-unit franchisees in your network may be able to suggest commercial efficiencies that they have discovered.

3. Business Oversight

Running several franchise units can be demanding, so you may need to consider what additional support you will need to run them all. Many multi-unit franchise holders appoint operational managers to run the individual franchise sites on their behalf. Depending on your size and how many franchises you own, you may even need to look at regional oversight.

This may allow you to take a step back and focus on more strategic aspects of your business, such as:

  • improving the hiring and training of any staff members your franchises employ;
  • developing better business processes and sharing business knowledge;
  • approaching business partners for new opportunities to develop relations; and
  • seeking out other business ventures to add to your portfolio.

This may be an opportunity to bring in individuals with new or unique knowledge and expertise to help your franchises flourish. Additionally, the business knowledge you gain from one franchise can be used to benefit your other franchises.

As a multi-unit franchise holder, you will likely still need to take part in the operations aspect of your franchises to some extent. Remember, you are ultimately responsible for your businesses’ success.

What Are the Risks of Multi-Unit Franchising?

Despite the potential benefits that you may gain from having multiple franchises in the same network, you should also be aware of some potential risks before purchasing additional units. The key risks you may face are:

  1. financial risk;
  2. saturation risk; and
  3. business risk.

1. Financial Risk

Diversity in your investments is generally a positive. However, it may mean that your investments are less lucrative. By investing more in the one network, you are adopting higher risk for the potential to gain a better return on your investment. This is particularly the case if you have additional costs for staff members in your franchise. 

It is important to remember that if the franchise network as a whole suffers due to changes in laws and regulations, new competitors or other market forces, then it is likely that all your franchise units will face these challenges if they are in the same network. Additionally, any contributions you make to a marketing fund for campaigns and promotions have a higher risk attached. This is because these funds are going towards the same network, rather than being spread across several businesses or industries.

2. Over-Saturation

Owning a multi-unit franchise can be radically different from running a single unit. This is because your units may compete with each other. The risk of over-saturation becomes more important to address when purchasing or setting up new franchise units as opposed to existing ones, since you may take business away from your current businesses.

Some franchise networks promise an exclusive franchise territory to prevent this problem, but the franchisor may alter this for multi-unit franchises. You should investigate whether having multiple franchise units will overcrowd an area and reduce the success of your overall multi-unit franchise.

3. Business Risk

Overseeing several franchises as opposed to running just one presents its own challenges. You may have the experience and expertise to run a single unit franchise, but the ability to find business partners and employees who you can trust to manage the business well is a skill in itself.

As you own more franchises, you increase your exposure to potential issues that may crop up in your businesses. In turn, these issues may result in breaches of your franchise agreements. Having well-developed processes and systems for accountability within your franchise support team helps to address this risk. However, as the multi-unit holder, you may be responsible for others’ failure to comply with regulations such as proper payment of staff.

The Australian Competition and Consumer Commission (ACCC) may pay closer attention to rapidly growing franchises networks, so it is extra important to understand your rights and obligations under your franchise agreement and the Franchising Code of Conduct.

What About Owning Multiple Franchises From Different Networks?

Instead of multi-unit franchising in the same network, you may decide to purchase multiple single units from different franchises. You may still face restrictions from your franchise agreement, particularly when it comes to owning similar or competing businesses, so it is important to understand your legal obligations and rights before taking action.

Depending on the businesses, there may be significant benefits from having several diverse franchises. This is especially the case if your franchises can:

  • provide services or products to each other;
  • share business expenses, such as leases; or
  • offer complementary products to avoid competing with each other.

Some of the benefits and risks of multi-unit franchising are still present here. However, for the trade-off of less influence in one network, you benefit from less risk of investing all your efforts into a single franchise network.

Key Takeaways

Owning several franchises may be daunting, but it can be a rewarding task. It is important that you understand the approval process and any rights, obligations or limitations that might be relevant to a multi-unit franchise holder or owner of single units in different franchises. 

To get the most success, you will need to learn how to utilise:

  • network influence;
  • commercial efficiencies; and
  • business oversight.

At the same time, you will need to be aware of and manage potential issues of:

  • financial risk;
  • saturation risk; and
  • business risk.

If you have any questions about owning multiple franchises, contact LegalVision’s franchise lawyers on 1300 544 755 or fill out the form on this page.

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.

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