Purchasing Multiple Franchise Units: What You Need to Know
If you a franchisee or prospective franchisee considering the purchase of a multi-unit franchise opportunity (i.e.‚ where you obtain the right to develop more than one franchise unit with a proscribed territory) you must evaluate and understand the advantages‚ if any‚ that will result from any potential "mult-unit opportunity". You must evaluate the franchisors FDD and franchise agreements to ensure that the advantages of a multi-unit development opportunity match the additional cost and legal obligations that you will incur. Factors that should be evaluated include:
- Will you be afforded a discount to the franchisor's fixed "initial franchise fee";
- Will you be afforded a protected territory where you will be afforded the exclusive opportunity to develop franchise units;
- Will you receive a reduced royalty structure as you develop additional franchise units‚ or‚ will you be paying the same royalty rates as single-unit franchisees;
- What are the minimum number of franchise units that you must develop;
- Is the development time-table sufficient for your development of the required number of franchised units;
- What is the amount of the development fee that you must pay to acquire the multi-unit development rights.
There are additional factors. However the primary consideration will be whether or not the costs and additional "legal obligations" that you are outweighed by your development of multiple franchise units. I am a strong proponent of multi-unit franchising and I believe that for the right franchisee‚ multi-unit franchising presents a significant opportunity. However much will depend on the franchisor‚ the franchise opportunity and your ability to develop and manage multiple franchise units. If multi-unit franchising is something that you are considering‚ you must also understand that there may be additional opportunities (when compared to single unit opportunities) to negotiate and refine the terms of your franchise agreements.
By Charles Internicola July 6, 2010
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