The experience of opening a franchise unit is rife with rewards, risks and challenges. Traditionally, even highly successful franchisees stuck to a single brand when expanding to multiple locations. But some entrepreneurs are exploring the unique possibilities offered by multi-concept franchising.
Having the ability to diversify their business capital, just like any other investor, allows franchisees the potential to increase both business and profit growth, while hedging against possible downturns in a particular industry.
Franchisors have expressed concerns about the distractions multiple franchise operations may create, such as a failing concept stealing attention from a franchisee’s other business. For their part, multi-concept franchisees have to exercise caution to avoid violating franchise agreements or comingling business records, not to mention the fact that effectively navigating two different franchise systems can be very difficult.
Nevertheless, for some entrepreneurs the benefits outweigh the risks. There are many different strategies to choosing the right franchise operations. The main idea, however, is to make sure each business compliments the other in a way that creates some kind of synergy for the main goals of the franchisee.
A prime example involves franchises that are at the mercy of seasonal changes. A lawn care franchise operating in a geographical area of the country where there are winter months, for example, may only provide lucrative paybacks during a few months out of the year. So, to balance out incoming profits more consistently, a franchisee may opt to invest in another business that provides income during the winter months such as a coffee house or specialty bread or soup shop.
Different Cash Flow Cycles
Another example involves franchises that, when initially commenced, do not bring in any real money. Franchising.com provides an excellent example and details an instance where a franchisee had decided to open an Aaron’s, a sales and leasing company of furniture, electronics, and appliances. Initially, the franchisee didn’t see profits from the company right away. The amount of money the franchisor needed to first invest in expensive merchandise to stock up the store was not immediately returned via monthly rental fees from customers.
To balance out the illiquid period, that same franchisee invested in several operational Applebee’s restaurants. The income from the restaurant franchise operations provided enough money to support the franchisee until the Aaron’s franchise turned a profit.
Whatever the approach, some New York franchise attorneys say that many franchisees who opt to diversify and invest in multi-concept franchising today have become-and will most likely continue to be-profitable.