Expanding Your Network: At Direct Capital, we’ve learned that the majority of our franchise customers have an eye on expanding their networks to become multi-unit owner-operators. After all, owning multiple units gives you more control over your market and the chance to generate greater revenue. However, the road to the multi-unit dream is much simpler when you have a good lender you can trust. Below are some basic steps to help you through the process of expanding your network through acquiring an existing franchise location – both before and after you secure financing for the project.
Get Your Finances in Check
When you’re thinking about expanding you franchise portfolio, you will have to take a good look at your current debt situation. Do you have any current loans? What’s left on your terms? Getting a clear picture of where you stand financially will put you in the best possible position when evaluating your next investment.
Once you think you’re in a good place to open a new location, you’ll want to begin getting all of your financial documents together. Start to get the financials for all of your locations, including those for the location you are hoping to purchase, organized and easy to look at, as you’ll likely have to present all of this information to your lender as part of your personal financial statement when the time comes to secure your financing.
Have a Solid Business Plan
Details like your staffing plan, what operational improvements you intend to make, how you will manage more than one location, and details of your local marketing plan all play a big role in your success and are important details your lender will want to know you’re prepared for.
Is the new location close enough to your current one that you will be able to reasonably commute and visit them both regularly? If not, take some time to think about how you will hire and train a management team.
Do Your Research
A very common expansion strategy for existing operators is to grow through acquiring an existing franchise location. The reason for this is simple; it removes the mystery from the equation. A quick look at that location’s track record and current management structure can give you an insight into the opportunity.
When you purchase an existing franchise, you are purchasing an established business. Not only are you inheriting the equipment and often the current employees and management, you’re also inheriting an existing customer base and a community that already knows you exist. Even an underperforming location can present a fantastic opportunity for the right operator who can come in and turn the location around. The key here is relying on your business plan to clearly determine why sales were down in the first place and what the strategy is to reverse the trend.
Have the traffic patterns changed adversely affecting the location? Was the location mismanaged? Was adequate field support provided by the franchisor? It could be any one of these things or a combination of all of them, but whatever the reasons, it is likely they could also affect the location when you take ownership.
Hot Tip: Be sure to ask questions to determine exactly how the seller has arrived at the selling price. Some franchises based in non-traditional locations, like colleges and airports, tend to be much more valuable than traditional free standing or in line franchise locations since they are catering to a more “captive” customer base. A price that is roughly 50-65 percent of revenue is generally a good guideline look for. If the price is high, be sure there is a good explanation for it.
If you opted to buy an existing location, consider what improvements and changes will be most important to your success. Below are three categories of improvements that can drive both short and long term growth to your bottom line.
Buying an existing location usually means buying everything that goes along with it, current employees included. Consider whether you’ll keep your current staff or if you’ll bring in new faces. New staff could mean a happier customer base and a change that could have a measurable effect right away.
Equipment and Technology
If the previous owner was using equipment that was worn down and out of date, an upgrade could mean incredible time and money savings that stem from an increase in efficiency. Keep in mind, there’s a chance that you could be asked to purchase new equipment down the line to account for new franchise product offerings as well.
Many franchise concepts will require franchisees to implement brand-wide updates and remodels on a relatively set schedule. Some may require minor updates every five years and a major overhaul every then to 15 years. If buying into a new brand, it’ll prove to be immensely helpful to learn where your new location currently falls into this schedule so you can plan for the upcoming expense.
If you’re not up to your current brand standards, you may want to consider opting for the updates sooner rather than later, as the benefits to your bottom line and your image could potentially be huge. Most franchises can expect to see a significant increase in revenue immediately after a remodel. It’s not just about appearances either; chances are the improvements will make your processes more efficient, which will wind up saving you money in the long run.
Don’t Go In Alone
Even if you’re a pro in the franchise game, having a lender that has a good deal of experience in financing store acquisitions will be a tremendous help. Look for a lender with dedicated account teams to support each national franchise brand. If your lender routinely deals with QSR chains, they will be well versed in all of the intricacies of the process and will be better suited to help you every step of the way. This ensures that you’re getting the amount of attention you deserve. In-house underwriting and operations teams are another bonus, helping to expedite approvals and processing to get your money to you quickly.
Being in the position to successfully open another franchise location, and actually going through with it, is truly a rewarding experience. Starting with a solid business plan and a relationship with a lender you can trust will go a long way in helping you realize your multi-unit ownership dream.
Robyn Gault is the Vice President of Strategic Accounts for Direct Capital Franchise Group. Direct Capital Franchise Group is a national direct lender with 20 years of experience. The firm partners with Franchisors to provide competitive financing to support new store development, remodels, relocations, store acquisitions, equipment upgrades, and more.
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