Buying Multi Units in a Franchise—What You Need to Know

May 22, 2017

As you prepare to close the deal on your first franchise, you will be offered a one-time opportunity for purchasing additional units. This is the multi-unit agreement. To incentivize the purchase of additional units, franchisors oftentimes discount the second and third unit franchise fee up to 50% or more.

 

The deeper the discount, the more tempting the offer. Before jumping on for additional units, there are several things you need to consider first.

 

Initial Investments

For a brick-and-mortar business, and many online businesses, the franchise fee is only the tip of the iceberg as far as investments go. Item #7 in the FDD outlines investment projections for getting the business open and running. Times that number by the number of units you want to purchase. Vet the initial investment projections with existing franchisees to double check the accuracy. You also need to factor in that additional units opened possibly years later will likely be more expensive to open.

 

This also raises the issue of financing. How do you plan to cover the initial cost for all the units? This could take many shapes, including bringing investors on board.

 

Territory Assignments

Pursue continuous territories to monopolize advertising in the region. This allows you to get more bang for your buck. Scattering your marketing efforts around different regions limits the marketing power you get from multi-units. Worse, your efforts support recognition for competing franchisees in the region.

 

As with all franchise purchases, investigate the demographics in your territory. You need to make sure your unique territory has a large enough draw from the right people to sustain all your units.

 

Timeframes 

What timeframe do you need to open the additional units? It needs to be realistic. If the multi-unit development agreement requires you to open two units in two years, it might be unrealistic given the tight real estate market . Spend time connecting with current franchise owners to discuss the amount of time it took to hit different milestones. Ensure that you have enough time to get your first unit operational before needing to get the second one rolling.

 

Discounts 

Evaluate the benefit of the discount. If the franchise fee for the first one is $40,000, and the second and third ones are $20,000 each, essentially you are getting the third one free. This creates an enticing offer.

 

However, if the price only comes down a few thousand for each additional unit, you might as well wait to get the first one profitable before adding additional units to your plate.

 

Ensure You Have the Right Legal Strategy

Whether you get one unit or go for the full multi-unit deal, you need a lawyer in your corner. As an experienced franchise lawyer and a co-owner of a franchise, I can help ensure you have solid legal footing to help propel your first franchise to success.

 

Contact me today to take the first step to legally protecting yourself and your future business.