Franchise Buying Guide

Buying in Bulk

What It Takes
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Guidant Financial specializes in helping entrepreneurs purchase new franchises using their retirement funds.

But do you fit the profile of a multiunit franchisee? According to Robert Nathan, who opened his first Mail Boxes Etc. store in 1985, "a multiunit developer has to be multifaceted as a businessperson. When we see a leader who's well-capitalized with a strong business sense and excitement about the business, we know we have a candidate we can grow with."

Nathan knows what he's talking about-he's owned eight Mail Boxes Etc. locations, and his organization now provides support for 138 franchised locations in the chain. He has also signed an area development deal with haircutting franchise Sport Clips. Nathan attributes his multiunit success to having the proper mind-set...and the proper staff to delegate to. "The right person has to be willing to give up something, including power and money, to his staff," he says. "The successful multiunit franchisee cannot be a total control freak."

You also need the right kind of concept for multiunit development. "Look for a strong brand with an established marketing system," advises franchise attorney Pamela Mills of Baker & McKenzie in Chicago.

Are you a people person? If so, multiunit franchising may not be for you. The concepts that play to your strengths are typically those that don't work well with multiunit franchising, says Gayle Cannon, an attorney with Dallas-based Thompson & Knight LLP. (See "Will It Work?" below.)

Reality Check

As in any business endeavor, many earnest franchisees have negotiated development rights and then failed to produce the results they imagined. Typically, development deals require franchisees to develop on a schedule. If you don't open stores on time, the penalty can be a loss of any further development rights and a forfeiture of the territory you've already paid for.

To succeed as a multiunit franchisee, you must have a reasonable game plan. Determine whether you have adequate capital by researching when a store becomes profitable. Franchisors typically try to negotiate a rapid rollout of territories, but the last thing you need is to be pondering the deadline for store number three when the first two are still losing money as part of their start-up phase.

If you're looking at a younger chain, you may be able to negotiate an option or first right of refusal for additional units, so you won't part with a lot of cash before you learn whether you like being in that business.

And though it may sound paradoxical, a good multiunit franchisee is able to think small-not necessarily in terms of total global domination. Though your eyes may be on the multiunit prize, every multiunit developer I talk to has the same piece of advice: Take the time to ensure that each location can stand on its own.


Todd D. Maddocks is a franchise attorney, small-business consultant and founder of Franchisedecision.com.

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This article was originally published in the September 2001 print edition of Entrepreneur with the headline: Buying in Bulk.

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