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A good friend of mine is a consultant who works with distressed businesses, mostly small to medium-sized family businesses. Some are franchisees who, like everyone this year, experienced significant ups (or downs) economically. It quickly became apparent a year ago that the risks created with a pandemic caused even more distress.
For some, the past year was a success; for others, having a franchise that was non-essential was frightening and financially crippling. As we swing back into a lower-risk time for illness, I hope every franchise owner sees their business gain strength. Still, the future holds risks, and diversifying your franchise holdings is one way to offset future risks.
There are various ways to diversify multi-unit franchise holdings. Let’s look at franchise concepts, location, and operationally diverse ideas:
Franchise Type
With so many to choose from, spreading your franchises over various industries in one way to spread risk. Last year taught us that a pandemic hurt fine dining but was helpful to take-out food locations. Working from home increased demand for home improvement projects and in-home computer repair and assistance. Likewise, future recession or political unrest will impact franchise sectors differently.
Location
Every location has its pros and cons. Diversifying franchise locations might be as simple as having an urban location and a suburban location. In the last year, that could have made a big difference if your current franchise was located where political marches occurred. Weather can make a difference, also. Locations in flood-prone areas might need partner sites in less-risky places. Imagine how weather impacts client behavior, and try to plan for upheaval.
Supply Chain
We’ve all been impacted by supply chain disruption in the past year. It is ongoing still, increasing some prices or making items nearly impossible to get. I’ve been waiting on an ETA for a microwave for four months as I write this. Who would have anticipated that in a world of plenty? For franchisees, consider the impact of a single item that you need. Maybe you have various locations with multiple franchise brands, but they are all dependent on fuel for vehicles. Or you’ve stayed within food franchising, but you are reliant upon sugar that is affected by some sort of blight. That would negatively impact every single location you own. Imagine your supply chain weak spot, and seek additional franchise units without the same reliance.
Operational Diversity
At-home service franchises have different overhead and labor needs. While restaurants are having difficulty filling their staff rosters right now, a smaller operation (or two) will be at full speed, much faster. Not only will a small operation provide a higher profit margin sooner, but it is also more deft at market changes. It is hard to steer a large ship in a new direction, but a small one can quickly change directions. We saw this when those smaller fine dining restaurants reduced their menus and provided delivery services. You might be a very flexible person, but if your business is not, you will be the captain going down with the ship.
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Diversifying franchises is about your long view of franchise ownership. Even if diversification translates to slightly smaller margins now, it is wise to put your future plans in multiple, diverse franchise operations to help ensure long-term financial stability. We can’t predict the next pandemic, political unrest, or hurricane. But we can reduce our risk by diversifying franchise holdings.
Anne Daniells is a co-owner of Enterprising Solutions, a professional services firm specializing in corporate communication and financial improvement for businesses where she shares decades of corporate and entrepreneurial experience—including franchise ownership—in her writings on business culture. She has authored hundreds of articles for publications including AllBusiness.com, TweakYourBiz.com, and MSN.com. Reach out via her website for more on where corporate culture, communication, and human architecture collide.