December 6, 2022
Lauren Platero

Operational Structure of a Multi-Unit Franchise

The operational structure of a multi-unit enterprise directly links to strategies, product offerings, and KPIs. There are many factors of a multi-unit business model that every business owner and franchisee must consider.

But first, why would a businessperson want to buy a franchise? Well, it’s already an established business model, there are already products and services to be sold, and it comes with an agreement of best practices. In fact, one can view the multi-unit franchise agreement as a manual for how to operate their businesses, without opening a restaurant from scratch.

Plus, opening a franchise business can be a less stressful experience in the finance department. Banks are known to be more inclined to lend funds to a franchise business than an independent start-up.

Another major advantage and cost-saver of opening a franchise is restaurant marketing assistance that comes with it. Upon purchasing a franchise, you’ll be provided with plans and a budget. Not only do these factors cost a pretty penny to create, but they also require significant amounts of time, research, and consideration.

The franchise industry in the United States is valued at approximately $670 billion. Most multi-unit franchise owners see the appeal in the major financial gains of the business structure. Plus, there are fewer restaurant expenses and operating costs when operating more than one unit.

Multiple franchises can sometimes be a safer investment since they don’t depend on just one site to generate all of the revenue. So, it’s one of the few business models where expanding can actually be the safer route.

Multi-unit business models are constantly evolving, which also makes them a profitable business venture for entrepreneurs–especially in the quick service restaurant ecosystem.

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What Is a Franchise?

A franchise is a common business model where products and services are distributed to the masses. Once a franchisor launches a business trademark and system of operations, they’re able to offer licenses to franchisees.

With a franchise license, the franchisee is able to operate the business under the name, branding efforts, and system the franchisor set in place. It’s a proven method of growing a business. Plus, it’s the primary reason why consumers have such a wide array of chain eateries nearby.

Bear in mind that there are slight differences between a franchise and an enterprise. However, they’re both ideal ventures for someone who wants to operate a small business while growing their wealth simultaneously. Read on to learn more about enterprises and what sets them apart.

What Is an Enterprise?

An enterprise is a business ntity that consists of numerous locations across a geographic area. Within the restaurant industry, these units are then categorized by larger groupings. Such groups include districts, regions, and divisions.

Difference Between an Enterprise and Franchise

The main difference between a franchise and an enterprise refers to the operational structure of both business models. An enterprise usually represents a parent company, whereas franchises are individual locations operated by different franchisees.

What Is a Multi-Unit Franchise?

In the hospitality industry, a multi-unit franchise is a business model where a franchisee operates multiple businesses within a particular territory. A multi-unit agreement allows the franchisee to own more than one unit of the same trademarked business for various franchisors.  

The operational structure of a multi-unit franchise is reflective of other franchise types, except a multi-unit franchise is much more expansive. Due to its lack of restrictions and exclusivity, a multi unit franchise can be a very lucrative business venture.

In a multi-unit franchise, there is ample opportunity for growth, innovation, and geographic expansion. However, it’s key for the franchisors and franchisees to be familiar with the operational structure of this business model. After all, each working part will contribute to the success of the business over time.

Operational Structure of a Multi-Unit Franchise

The operational structure of a multi-unit franchise is unique from the single-unit model. When you run a multi-unit franchise, you are operating multiple locations with the same brand and operating system.

This offers you the ability to grow revenue through the expansion of locations, leading to a higher ROI in the future. Remember that the ROI meaning refers to the amount of money you invest in the business vs. the amount of revenue it generates.

We can break down the operational structure of a multi-unit franchise into three tiers. Read on to learn more about each of them.

1. Franchisor

Consider the franchisor the primary decision-maker. The franchisor is the individual who can sell or grant permission to franchisees. In doing so, they’re allowing another person to operate a business under their trademark and operating system.

High-level decision-making almost always links back to the franchisor. This is because many high-level decisions go hand-in-hand with legalities and major expenses. So if a franchisee wants to implement a new system or type of software, there should be an approval process to do so.

With all of this in mind, every franchisor should carefully consider their multi-unit agreement. All contracts and documentation must be drafted and revised by a legal professional to ensure the safety of the company owner.

Franchisors earn a living from royalties and fees paid by the franchisees. Typically, this money is what’s left-over after the franchisee pays all of the standard overhead expenses. On average, the royalty percentage of a franchise is about 6% of the gross revenue.

2. Franchisee(s)

One can view the franchisee as the middleman between the franchisor and the customer base. After receiving permission from the franchisor to operate a business under a particular name and entity, they’re free to move forward with standard operations.

According to recent statistics, there are over 750,000 franchises in the United States alone. Many of these establishments are multi-unit franchises, which boasts endless possibilities for growth and revenue.

As the franchisee of a multi-unit business, you’re able to guide each restaurant toward a successful outcome. From offering top-notch customer service to efficiently take inventory, there are several ways to take the lead and make each location a great place to visit.

Though there will be limits outlined in the multi-unit franchise agreement, this role does have the authority to execute stellar operations, marketing tactics, and HR abilities. So, franchisors should be certain that they’re granting licenses to business personnel with the enthusiasm and skillset to thrive in each territory.

3. Restaurant Staff

The restaurant staff consists of customer-facing team members, as well as back-of-house staff. The franchisee is responsible for hiring the restaurant staff. So, it’s crucial that they recruit an efficient and proactive group of employees.

Restaurant staff are responsible for a number of tasks. Several of the most important duties include: providing exceptional service to guests, creating an inviting atmosphere, accurately preparing food according to recipes, maintaining health and safety standards, and serving dishes.

Are you about to onboard new hires for your franchise? Keep in mind that a restaurant team should consist of the following roles:

About 7.5 million employees in the United States work in franchise businesses, most of which are restaurants. This statistic means that there are numerous job opportunities within the market, and there’ll likely be increased growth in the upcoming years.

Geographic Structure of a Multi-Unit Franchise

The operational structure of a multi-unit franchise also includes the geographical layout. Within a multi-unit franchise, there are usually four management segments to be mindful of, which include:

1. Store

Each “store” or restaurant represents an individual unit. So, a multi-unit franchise could also be referred to as a multi-restaurant franchise within the food and beverage industry. Each unit is operated by the franchisee and the staff hired for that particular location.

2. District

Restaurant districts usually refer to a specific area. In simpler terms, the sector of a state that spans one to three zip codes typically makes up a district. It’s a term used when discussing franchise business models but on a local scale.

3. Region

A regional sector of multi-unit businesses spans a much larger geographic area, hence the name. Think of it as a series of restaurants that span across a specific region of the country. Whether it’s the tri-state area, Midwest, or West Coast, there are various sections that can make up a region.

A franchisee of a multi-unit franchise can operate multiple businesses that span across a region. In these instances, customer data and location-specific insights are necessary. A restaurant’s strategy can differ tremendously based on its location, so gathering this information before opening up new locations is vital.

4. Division

Divisions refer to a collection of businesses on a large scale. Think of it this way–more than one region can be part of a single division. The operational structure within a division may also be more reminiscent of a corporation.

Frequently Asked Questions About the Operational Structure of a Multi-Unit Franchise

As an entrepreneur, it’s vital that you weigh your options before opening a franchise. There are numerous factors to consider, and the operational structure is just one component.

Want to learn more about the different types of franchises, beyond the operational structure of a multi-unit enterprise? Read on to learn more about it all!

What Is the Structure of a Franchise?

In simple terms, the structure of a franchise is one where the company owner (franchisor) offers licenses to others (franchisees). The license allows the franchisee to sell the brand’s products and services for a select period of time.

What Is the Best Organizational Structure for a Franchise?

Individual franchising offers the most control and flexibility over franchise operations. It’s also simpler to dictate which franchisees can open additional locations. Not only are you dealing with fewer entrepreneurs, but the franchisor can better make these decisions when they’re based on performance.

What Are the Processes and Operations of A Franchise?

The processes and operations of a franchise should be part of the initial contracts and renewal conditions. These documents should detail the criteria of what the franchisee has the autonomy to pursue, as well as where the franchisor can draw limits.

What Are the Four Types of Franchise Structures?

The four types of franchise structures are:

  • Single-Unit Franchise Agreement. In this agreement, a franchisee operates a single unit with no guarantee that they’ll open additional units.
  • Multi-Unit Franchise Agreement. In this structure, franchisees operare multiple restaurants within a specific territory. It’s also possible for the franchisee to own the right to operate more than one unit of the same brand for multiple different franchisors.
  • Area Development Franchise Agreement. In this agreement, a franchisor and an operator work together. The operator runs the franchises within a specific geographic area and cannot sub-franchise to third parties.
  • Master Franchise Agreement. In this structure, the master franchisor can grant the master franchisee a particular area where the franchisee has the ability to open new units, as well as “sub-franchise” to third parties.

How Do You Organize a Franchise System?

Follow these seven steps to organize a franchise system:

  1. Confirm whether or not a franchise is the right business model for you.
  2. Issue and sign all of the franchise agreements.
  3. Draw up an operations manual and evaluate it with an advisor.
  4. Register all of the trademarks for the business.
  5. Establish the business and branding efforts.
  6. Register and file your franchise disclosure document (FDD).
  7. Create a sales strategy, a marketing plan, and a budget.
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The Future of Multi-Unit Franchises

Franchises are great investments with much room for opportunity. There are numerous perks to operating a franchise as opposed to starting a business from scratch. So, what does the future look like for multi-unit franchises?

Multi-unit franchises will continue to succeed with optimal customer loyalty and leadership. Those who are committed to innovation, growth, and the longevity of the brand are sure to execute the proper strategies to keep the entities afloat.

With this in mind, we expect multi-unit franchises to onboard innovative restaurant technology in the years to come. By doing so, they’ll be equipped with the tools and resources to offer a stellar customer experience and gain a competitive advantage.

Plus, off-premise solutions can integrate with current systems, syncing across a cloud-based platform. These groundbreaking features are ideal for multi-unit franchises, as it allows the owner(s) to have simple access to important information across the board.

Want to learn about how off-premise solutions can enhance the operational structure of a multi-unit franchise? Book a demo with Revolution Ordering to learn more and get started!