Overview of the Multi-Unit Franchise Agreement

For decades, the vast majority of franchises were operated by franchisees who owned only one location. Over the years, though, the multi-unit franchisee has become more prevalent; today, just over half of all franchises are owned and operated by franchisees with multiple franchise business interests. There are a few reasons for this shift, chief among them the Great Recession. Franchisees with a diversified portfolio were generally better positioned to survive the economic downturn. 

Area Developer Agreement

Multi-unit franchisees must complete an additional form, which is referred to as the area developer agreement. This agreement lays out the number of locations the individual franchisee plans to open, as well as the timing for each location’s opening date. Often, multi-unit franchisees will operate locations in a concentrated area or region. All of these details will be covered in the area developer agreement, which must be completed in addition to individual franchise agreements for each location. 

Benefits of Being a Multi-Unit Franchisee

As a multi-unit franchisee, you are not completely reliant on one franchise location for income. For instance, let’s say a maintenance project forces streets leading to one of your businesses. If you have multiple franchises, you will be able to better offset any potential losses. Another benefit these types of franchisees have is that franchisors are often highly motivated to lease franchises to one individual or entity that can handle multiple locations. 

Sometimes, franchisors are so motivated that they offer certain incentives for franchisees to take on multiple units. Multi-unit franchisees offer an opportunity for franchisors to open new locations in a strategic manner. Overall, franchisors find that multi-unit franchisees increase efficiency in many ways. 

Challenges for Multi-Unit Franchisees

Compared to single-unit franchises, multi-unit franchises require a substantial amount of startup capital. Another potential pitfall for multi-unit franchisees is that ensuring the success of multiple locations can overwhelm some first-time owners. For many reasons, multi-unit franchisees often create corporations or LLCs with several (or more) employees to operate their many franchise businesses. 

Conclusion

The number of multi-unit franchisees has increased in recent years, due in part to the advantages realized by all parties of multi-unit franchise agreements. If you are thinking of taking on multiple franchise locations, though, you need to be strategic and realistic about your goals and capacity.

Before signing any franchise agreement, it is best to consult with an experienced business law attorney who can advise you on best practices for franchisees. Call Trembly Law Firm today at (305) 431-5678 to discuss your options and help you achieve your business goals.

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