Infrastructure is essential to support multi-unit franchising growth. Processes, procedures, marketing, talent, attractive culture, capital, and a keen eye for the legal technicalities are only a few of the diversity nuances that must be in sync for success.
We recently asked Michael Einbinder, an attorney with Einbinder & Dunn LLPfor growth insights from a legal perspective. Michael shares:
Assuming a multi-unit franchisee has built out an existing territory with your existing brand, you may have saturated your market and do not have any more space to put in additional units. Acquiring a second brand that is complementary to the first allows for continued growth. Given the growth of consolidation in the industry and the creation of platforms for multiple brands, franchisees may find that they can grow by acquiring sister brands of existing businesses. Diversification like this is critical to growth.
There are, of course, economies of scale in this approach. If properly created, a management team can take on more responsibility than just one brand. The existing executive team (operations, accounting, etc.) will be able to take on more responsibilities. The same may also be true at the regional and district manager level. These people may be able to handle the necessary functions without the requirement of hiring more employees at that level. These costs can be split among more than one brand. And it goes without saying that specific roles should be filled by an executive team that is bound by employment contracts and protections for trade secrets. Franchisors may also require these types of agreements for high-level employees. If the franchisee is run as a family business, the development of family governance agreements should also be considered.
Furthermore, Michael Einbinder shares:
Franchise agreements for existing and new concepts need to be reviewed to make sure they allow what some franchisors may view as competing businesses (they should be reviewed by knowledgeable counsel before being entered into anyway). In some cases, where language is unclear, waivers can be obtained.
The franchise company structure needs to support the growth. Another issue is how the franchisee company is structured. The best approach may be to have a holding company with two subsidiaries, one for each brand. Those companies can be parents to the operating entities with each location owned separately. The holding company can be set up to employ the executive team and management-level personnel.
Regardless of the path, you want to make sure you are surrounded by advocates and advisors who are experts in the multi-unit franchise industry. This will ensure you are building your own personal foundation for the scalable growth of your multi-unit franchise portfolio.
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