In any successful business, the desire to expand is often powerful, and for franchising it is no different. Once a franchisee has successfully operated a single outlet, the next logical step would appear to be growth by opening a second or third store for multi-store ownership, or even building a regional footprint.
“Real, sustainable growth in the franchise sector depends not only on ambition, but also on timing, readiness and thorough investigation. If you want to grow, you first need to be 100% sure that you are ready for everything that it involves,” says Henk Botha, Franchise Specialist for Restaurants and Quick Service at FNB. “Growth for its own sake can be risky.”
Key factors to consider before expanding into multi-store ownership:
1.Financial readiness
Banks typically use debt repayment as a key signal of expansion readiness. If you’ve managed to reduce your initial franchise loan by 50%, this shows that you are running a healthy business. It also creates room to leverage existing equity when funding a new outlet. “We also look closely at profitability, and specifically EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), to calculate the enterprise value of your current business. Without strong profits, your growth plans risk stalling before they start”.
2. Operational readiness
Operational readiness is often the make-or-break factor. An important question to ask is whether an existing store can function independently without the presence of the owner, and if there are systems in place to handle daily pressure? If it can’t, expansion could dilute performance across its entire portfolio.
3. Partnerships
Some franchisees overcome this operational hurdle by entering into partnerships, often to share capital or spread the operational load. That can be a smart move, but only with the right partner. Too often, people bring in family or friends out of convenience, not strategic alignment. It’s a recipe for disaster if there isn’t shared vision, meaningful contribution, commitment, and clear legal agreements in place – even if your partner is your sibling or best friend.
4. Strategy
“Building a franchise group takes more than money and desire. It requires patience, discipline and, often, a significant mindset shift. Multi-store ownership means you have to move from being an ‘operator’ to being a strategist. To do that, you have to be willing to let go of some control in order to achieve the scale you desire. It means empowering your team, and often, sharing equity to secure their investment in the business’s success,” adds Botha.
5.Empowering Employees
The most effective multi-franchise owners are those who focus on building future leaders within their operations. They create pathways for employees to become managers and managers to become co-owners. This doesn’t just ensure continuity; it creates an ownership culture that drives performance.
“While there’s no one-size-fits-all approach, there is a definite principle – which is to only aim for growth when your business is ready to sustain it and when you and your team can carry it forward. So, before you scale into multi-store ownership, ask yourself if your business is truly ready to grow. If the honest and carefully considered answer is yes, the opportunities are abundant. If the answer is not yet, don’t rush it – there is time to first strengthen the foundation,” concludes Botha.
