Franchising has been and continues to be a growth industry in Canada due to its proven business model, ongoing support and extensive network which can be especially important in today’s environment.
While some franchisees dive in headfirst 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 becoming a multiple home owner, there are several factors to consider.
Due diligence
One of the most important exercises when considering any style of multi-unit property starts with 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, and all terms and conditions for expansion beyond the current network.
As franchisors diversify their brands, for existing franchisees it is always a good idea to verify that the brands being considered do not violate the franchise agreement.
Map 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 the brand supports growth plans, training, and day-to-day operations.
Operations
The transition to multi-unit ownership often means that the focus shifts from working in the business to the business. To do this, franchisees will have to rely on other people to manage the existing franchise.
Delegating management tasks is often cited as one of the most difficult tasks when growing units. Hiring capable and trustworthy people will allow the flexibility and time to focus on the new franchise while maintaining brand standards.
If considering expanding into other networks, franchisees should ensure that their current management team can work across multiple brands. Otherwise, you’ll need to hire a team and come up with a training plan focused on each individual brand.
Most multi-unit, multi-brand franchise groups will incorporate management bonus programs to keep teams focused on key business performance indicators. Some franchisees also consider offering percentage ownership to key managers as an incentive to further develop and retain them as valuable members of the organization.
finance
Before considering expansion, it’s important to consider some of the financial drivers that can make multi-unit ownership a success. It goes beyond just looking at sales numbers. When reviewing financial statements, it is recommended to work with a team of specialist professionals who can provide advice and understand the nuances of timeshare. To begin with, ensure that there is sufficient access and confidence in the quality of financial data and that all figures conform to industry or brand guidelines such as cost of goods, labor -labor and rent. If the numbers are outside the ‘norm’, understand why and be able to demonstrate how the business will turn around if this is the case.
From a lending and banking perspective, there are two areas to consider when the goal is multiple home ownership.
Financing possibilities
Global equity pools the equity of the company or companies and then uses it for further expansion. Global equities can reduce the amount of upfront cash needed to invest in the business for growth.
A less used product available to business owners is a development line. Several financial institutions offer this product and help with a predetermined limit aimed at future expansion. This product can help save time and money. A key benefit is that when a prime location presents itself, you can move quickly with pre-approval in place.
Another key aspect to consider is the structure of your organization. For several reasons, it can be advantageous to separate each business or location from the others. This is true in the use of global equity, because each amount of equity can then be easily determined. The recommendation is to have a holding company and then all the individual sites as independent companies underneath.
Consolidate your banking operations
Consolidating your banking operations with one financial institution can have many benefits and improve the ease of doing business and growth.
Savings on your day-to-day banking, payment processing, and other related costs can also justify discounts once all banking is under one roof. Payroll and benefits programs can be better leveraged, creating a competitive advantage in a tight labor market.
It also creates greater access to capital, as with all loans under one roof, the entire 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 the structure of the organization becomes very important not only for control, but for the future.
When it comes to a multi-unit franchise like McDonald’s, mapping current locations in a franchisee’s preferred area can indicate where the potential for growth is greatest.
The transition to multi-unit ownership often means that the focus shifts from working in the business to the business. To do this, franchisees will have to rely on other people to manage the existing franchise. When reviewing financial statements, it is recommended to work with a team of specialized professionals who can provide advice
and understand the nuances of timeshare.
Daren Chalupiak, Regional Market Manager for BMO, has worked in the financial industry for over 20 years. He helps franchisees and franchisors start and grow their business with sound advice and making sure they understand the solutions available to them. Contact him at [email protected].
Andrew Carter, Regional Market Leader for BMO, has worked with franchisees and small business owners throughout his professional career. His strong operational background complements his franchise financing knowledge, providing holistic advice to all franchise situations. Contact him at [email protected].
