This article are provided for information purposes only, and are not intended as legal advice.


Franchises – are you better off to buy one large one or multiple small ones?

September 29th, 2009

Did you ever notice that franchisors tend to sell more than one franchise to each franchisee?  Ever wondered why?  As in every system where you have many people, some are excellent operators, some are okay operators and typically 10% are poor operators.  Franchisors will tend to sell another franchise to the people who they know that are excellent or good franchisees.  They know what they are getting and they avoid the 10% risk of getting a bad operator.

 

Why do franchisees buy multiple locations?  Many franchises do not make large amount of profits.  Many of the smaller franchises generate profits of $50,000 per annum.  Basically, if you buy a franchise, you are buying yourself a job.  If you are able to buy multiple locations say 10 in total, you are no longer making $50,000 per year, you are now making $500,000.  The business is large enough that you may now have an operator of the business and you are no longer involved in the day to day activities of the franchise.

 

Are you better off to buy a franchise with $500,000 of profits or 10 franchises making $500,000 in profits.   There are pros and cons

 

Benefits of one larger franchise

  • easier to manage, you only have to go to one location
  • easier for the owner to supervise because they do not have to travel between locations
  • you will have more staff therefore you may not need to be active in the day to day operations of the business
  • you have only one location therefore more control on cash since less people handling cash then if you have multiple locations

 

Cons of owning one large franchise instead of multiple locations

  • all your eggs are in one basket therefore you may be a greater risks.  Some of the larger franchises have put new franchises too close to the old franchise locations.  As a result, the franchises now canabolize each other instead of taking away business from other businesses.
  • you can own different franchises therefore you can diversify your portfolio and try to reduce risk
  • if problems take place with franchisor, you could be vulnerable to dealing with one organization if the franchisor is not in good financial health

  

There is no right and wrong, you have to make a decision if you want multiple locations or one larger location.  Remember, when starting off, you typically start off with one location and then start accumulating more when you have experience of working with your existing franchisor for a period of time.  The period of time may vary between individuals, it could be a year it could be five years, whenever you have figured out the working of the franchisor that you have chosen and only if you are happy with the level of service that you are getting with the franchisor.


Filed under: buying a franchise — Gary Landa @ 8:52 am


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