Franchise Update Magazine Issue I, 2017 - Page 54

For franchisees who begin as the owner-operator of a single unit , the transition to multi-unit ownership can be difficult .

A typical multi-unit agreement provides to the developer the right ( and obligation ) to open a certain number of units according to a specified timetable within a defined territory . In exchange , the developer pays a fee that usually is based on the number of units to be opened . The number of units , opening timetable , territory , and fee are all agreed upon between the franchisor and developer before the multi-unit agreement is signed . Then , as each unit opens , a franchise agreement is signed for the operation of that unit .

Strategically , multi-unit agreements are an ideal way for most franchisors to develop their network and should be considered for inclusion along with single-unit franchises in any expansion plan . Multi-unit agreements provide an attractive opportunity for investors looking to build a larger business , while enabling the franchisor to better forecast growth , project revenues and resource needs , and reduce their overall cost of franchise sales and support .
Among the risks , however are that the development schedule is not met and / or growth is not what either side had anticipated . For the developer this can result in the termination of their multi-unit agreement and the loss of their right to open additional units . In addition , since area fees typically are non-refundable , the termination of the multi-unit agreement may result in forfeiture of their fee as well . For the franchisor , brand awareness and market penetration are not achieved , revenues are lost , and there is added cost and relationship management time in working through a resolution with the developer .

GROWING YOUR SYSTEM Growthstrategies

From One to Many Helping your operators multiply their growth BY KAY AINSLEY

For franchisees who begin as the owner-operator of a single unit , the transition to multi-unit ownership can be difficult .

Making the transition To lay a foundation for the success of a multi-unit developer and enable both sides to achieve their goals , there are several things a franchisor can do . Franchisors looking for organic growth through existing franchisees should also ask themselves if they have the proper structure in place to enable the single-unit franchisee to make a successful transition to a multiunit franchisee .
The first is to provide training and education in operating a multi-unit business . The role of the developer is different than that of an owner-operator . While learning to operate a unit of the business is fundamental to both groups , the developer must also be trained in managing multiple units . Many of the subjects are the same , but the content and depth may be different , such as planning and forecasting , supply chain management , building an organization , and leveraging marketing programs and budgets , to name a few . For franchisees who begin as the owneroperator of a single unit , the transition to multi-unit ownership can be difficult . Having the proper training provides the confidence necessary to make the change .
The second issue may seem at first to be counter-intuitive : the development schedule provides for too much time between openings , especially at the beginning of the agreement . Too often we ’ ve witnessed someone open one unit and continue to manage that first unit while opening the second . Once the second unit is open they divide their time between the two and struggle to open unit three . If they open number three they find it overwhelming to divide their time between all three units so numbers four , five , six , and more are never even started . Compressing the opening schedule eliminates the option for the developer to become settled in an owner-operator role , and in some respects forces delegation of unit management to managers . While this approach helps ensure the development schedule is met , it also requires that the multi-unit developer have the necessary financial resources available before signing the agreement to execute a more aggressive opening schedule .
Franchisors with multi-unit franchisees should also examine the way they provide field support . Multi-unit franchisees may face different issues and have different concerns than their single-unit brethren . In many cases , support programs can be provided to the developer , and they will bear the responsibility for implementing the program in each of their units . Franchisors can consider having a field consultant dedicated to multi-unit franchisees who is trained in delivering the advice and support necessary to add value to the developer ’ s business .
Another option for maximizing the value of a multi-unit agreement is to offer the developer an incentive for meeting or exceeding their development schedule . There are several ways to provide incentives . For example : if the developer has the total number of required units open and operating before the expiration of the development agreement ; and if both the developer and the franchisor agree that the territory can hold an additional unit ( or units ); and if the developer begins the construction of the additional unit ( or units ) before the expiration date , the franchisor waives the initial fee for that unit ( or units ).
Developing a multi-unit program is more than simply setting the fees and preparing the documents . The proper types and levels of support must be provided for both franchisor and franchisee to realize the benefits . n
Kay Ainsley is managing director of MSA Worldwide , a leader in franchise consulting that provides strategic and tactical advice based on real-world experience to new and established franchisors . Contact her at kainsley @ msaworldwide . com or 770-794-0746 .
52 Franchiseupdate ISSUE I , 2017