Franchising has been, and continues to be, a growing sector in Canada due to its proven business model, ongoing support, and vast network which can be especially important in the current environment.
While some franchisees dive head-first and start with multiple locations, most take the traditional approach and start with one location with the goal of opening more. Whichever path one takes to multi-unit ownership, there are several factors to consider.
One of the most important exercises when considering any style of multi-unit ownership starts by doing the homework.
The franchise disclosure document and franchise agreement contain a lot of important information, including territorial rights, fees, and processes for buying and selling franchises as well as any conditions on expanding beyond the current network.
As franchisors diversify their brands, for existing franchisees, it is always a good idea to check to ensure the brands being considered are not in violation of the franchise agreement.
Map out the current locations in your preferred area to understand where there is growth potential and where growth might be limited due to existing franchisees and/or competition.
Speaking with existing multi-unit franchisees can provide you with first-hand knowledge of how well the brand supports growth plans, training, and day-to-day operations.
Transitioning into multi-unit ownership often means switching focus from working in the business to working on the business. To do that, franchisees will need to rely on other people to manage the existing franchise.
Delegating management duties is often cited as one of the more difficult tasks when growing units. Hiring capable and trustworthy individuals will allow the flexibility and time to focus on the new franchise while still maintaining brand standards.
If considering expanding into other networks, franchisees need to ensure their current roster of management can work across multiple brands. If not, you will need to hire a team and develop a training plan with a focus for each individual brand.
Most multi-unit, multi-brand franchise groups will incorporate management bonus programs to keep teams focused on the key performance indicators of the business. Some franchisees also consider offering a percentage ownership to key managers as an incentive to continue their development and retain them as valuable members of the organization.
Before considering expansion, it is important to contemplate some of the financial drivers which can make multi-unit ownership successful. It goes beyond just looking at the sales figures. When reviewing any financials, it is recommended to work with a team of specialized professionals who can provide advice and understands the nuances of multi-unit ownership. To begin, ensure there is enough access and confidence in the quality of the financials and that all numbers fall in line with industry or brand guidelines such as cost of goods, labour, and rent. If the numbers are outside the “norm,” understand why and be able to demonstrate how the business will be turned around should that be the case.
From a lending and banking perspective, there are two areas to consider when multi-unit ownership is the goal.
Global equity is pooling together the equity of the business(s) and then utilizing it for further expansion. Global equity can reduce the amount of upfront cash required for investment into the business for growth.
A less utilized product available to business owners is a development line. Several financial institutions offer this product and help with a pre-determined limit aimed at future expansion. This product can help save time and money. A key advantage is when a prime location comes up, you can move quickly with a pre-approval in place.
One other key aspect to consider is the structure of your organization. For several reasons, it can be advantageous to keep each business or location separate from the others. This is true in utilizing global equity as each equity amount can then be easily ascertained. Recommendation is to have a holding company and then all the individual locations as independent companies underneath.
Consolidate your banking
Consolidating your banking with a single financial institution can have many advantages and improves the ease of doing business and growth.
Savings on your daily banking, payment processing, and other related fees, may also warrant discounts once all the banking is under one roof. Payroll and benefit programs can be better leveraged, thus creating a competitive advantage in a tight labour market.
This also creates greater access to capital, as with all lending under one roof, the full amount of global equity can be utilized.
Working with a single financial institution can provide access and provide holistic advice on all your business and personal needs, including estate planning, tax preparation, and private wealth management. This is where structure for the organization becomes very important for not only control, but for the future.
When dealing with a multi-unit franchise like McDonald’s, mapping out current locations in a franchisee’s preferred area can indicate where growth potential is the strongest.
Transitioning into multi-unit ownership often means switching focus from working in the business to working on the business. To do that, franchisees will need to rely on other people to manage the existing franchise. When reviewing any financials, it is recommended to work with a team of specialized professionals who can provide advice
and understand the nuances of multi-unit ownership.
Daren Chalupiak, regional market leader for BMO, has worked in the financial industry for 20 plus years. He has been helping franchisees and franchisors to start and grow their businesses through sound advice and ensuring they understand the solutions available to them. Contact him at Daren.Chalupiak@bmo.com.
Andrew Carter, regional market leader for BMO, has been working with franchisees and small business owners his entire working career. His strong operational background complements his franchise financing knowledge, providing holistic advice to all franchising situations. Contact him at AndrewM.Carter@bmo.com.