“A small number of pioneering franchisees are starting to build businesses of multibrand franchise groups.”
natural reticence to work with a franchisee that runs multiple brands. The franchisor will generally have concerns that an operator with multiple brands won’t devote enough time to their brand or be able to run multiple systems at the one time, and rightly so. But if the franchisee can demonstrate proven experience running multiple stores, this is likely to help convince the franchisor the franchisee is capable of running multiple business brands. Because before a franchisee can take on multiple brands it’s likely he or she will have demonstrable experience running multiple stores for a single brand. It’s during this stage the franchisee will develop the skill to run multiple businesses concurrently, experience that can be parlayed into building a business with multiple franchise brands.
The multi-store strategy Franchisees that make the leap from running a single store to running many stores under the same franchise system will learn to develop a different mindset and business culture to the traditional mindset franchisees have when they own a single store. Often, single store franchise owners will work in the business 24/7 and have total operational control. A proportion of successful single store franchisees will, however, want to open another franchise for the same brand, perhaps located in the same area as the first franchise. This approach can work well if the franchisee has developed trusted staff he or she knows will be able to run the first franchise while the second franchise is developed. But when it comes to opening a third store, this is the point at which the franchisee must take a more strategic rather than operational approach to running the business. Deeper business and financial disciplines will need to be put in place, especially when it comes
to staff rostering and marketing. It’s also at this stage the franchisee will develop the expertise to collect and process a lot of financial information in a short amount of time. When a franchisee moves to a multi-store situation thought also needs to be given to how senior staff will be motivated and incentivised to stay with the business, because often the success of individual stores depends on experienced, long-term, loyal staff. A good idea is to put in place profit sharing arrangements with senior staff, linked to clear financial targets. For example, a store manager who reaches a target of taking weekly revenue from $15,000 to $18,000 might be entitled to a share of the profits from the additional revenue.
Funding growth It’s also at this point consideration needs to be given to how the growth of the business and the network of franchises will be funded. Sometimes, the original franchisee will identify a capital-rich business partner with which to work. Alternatively, the franchisee might be able to borrow funds from a bank to fund the expansion of the business. An ideal situation for a franchise owner to be in when approaching a bank for capital to fund a new store is to be able to demonstrate revenue growth for the initial store. The franchisee might have purchased an initial store for $350,000 and lifted weekly revenue from $15,000 to $20,000, increasing the value of the business to $600,000. This might mean a bank is prepared to lend the franchisee $325,000 to fund the purchase of an additional store, whereas a loan of only $175,000 might have been approved had revenues remained at $15,000 per week. Having access to additional funds will mean the franchisee can invest in a quality business, which will increase the business’s chance of success.
Working with franchisors Times are changing and many franchisors who previously resisted multi-unit franchising now encourage their best franchisees to open multiple stores because it demonstrates a clear career path to new franchisees coming into the system. And it can also reduce the risk to the franchisor because the franchisee has demonstrated success in running one business, which can be extrapolated to other sites. Initially there will be franchisor concerns about multi-brand investment similar to concerns about operators running multi-unit investment several years ago. But franchisors will discover there are some people suited to multi branding and will in time open their arms to people with the ability to run multiple brands simultaneously. Although multi-brand and multi-site franchise businesses are likely to become more popular, and an exciting prospect for ambitious franchisees, it’s important to recognise single unit business franchisees will continue to operate and prosper. But the existence of multi-unit franchise businesses does point to a maturing in the Australian industry, which is a positive development for all franchise owners as it provides broader scope of investment in the sector. v Rod Nuttall is the National Head of Franchising at Commonwealth Bank. He leads a specialist team of business bankers dedicated to providing tailored financial solutions to both franchisees and franchisors around the country Important information: This general advice has been prepared without taking into account your particular financial needs, circumstances or objectives. While every effort has been made to ensure the accuracy of this information it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication.
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