Launching a first franchise is an amazing experience where you get to be your own boss, so it’s common for the appetite for added success to kick in. Knowing when to launch your second and third franchise comes down to research, planning, and striking when the opportunity is hot.
This guide will help you determine if the market is looking good now or in the near future for you to launch a second franchise location. If your local market isn’t as appealing, you’ll learn how to locate and evaluate other nearby spots that may be better.
You’ll also find tips on how to modify your current marketing and advertising efforts so you can use your current knowledge and apply it to the needs of your new demographic and regional customer base.
The Right Time to Launch a Second or Third Franchise Location
The right time to launch your second or third franchise is when you can financially, physically, and mentally handle a second and third business. All three factors are equally important.
Financially
Getting to a profitable level with one location is part of the battle. Your new location is going to eat away at funds until it can build a loyal customer base and begin generating revenue. Using some of your profit to help fund the second business can be smart.
You’ll want to track your financials and line them up with the costs so you don’t damage your profitable business trying to make a second or third location work. Remember, throwing more money at a problem doesn’t necessarily solve it. Be open to trying and testing alternatives that will help you reach the intended outcome.
Create a list of costs to get an estimate of your expenses based on your current franchise. You’ll need to modify the list for the second location as property taxes, rent (if you’re not buying), utilities, franchising fees, payroll (minimum wage can change by county), etc. will all be different.
Here are some of the expenses to account for:
- Payroll and hours needed with county minimum wage
- An additional manager
- Rent or land purchase and property taxes
- Utilities
- Marketing
- Franchise fees and royalties
- Equipment and supplies
- Inventory
- Insurance and legal fees
- Vehicles and transportation
A normal franchise financing calculation would be adding assets together, then subtracting debts, and finally adding the new expenses for the new franchise:
Assets (Cash on hand + semi-liquid assets you can use + investments like retirement and your home) – Debts (current debts like credit cards and car loans + mortgages + business loans) & Expenses for the cost of the new franchise = what you will need for financing.
For a second or third location, if the first location is already profitable, take the sum you can invest from your original location without damaging it and add it to the first group of assets. This will reduce the amount you need in a franchise loan or eliminate the cost completely as you can self-fund the new location.
Financially, you’ll want to take your net profit, which is different from net revenue, and subtract what you need to invest in the next location. When you can self-fund, getting a franchising loan for the second location may seem less scary.
Unforeseen Expenses: Manager and Vehicles
When you have multiple locations, you cannot always reduce costs by doing the work yourself. You cannot be in two places at once, and your vehicle will get more wear and tear being in constant travel between locations.
Pro-tip: Having a reliable vehicle that can handle consistent travel is an expense worth taking on when you’ll be driving back and forth, causing excess wear and tear.
To fix this, consider promoting someone from the original location to become a manager, or give them a bonus to manage and oversee the quality of the second and third location. This is more expensive but also helps ensure things meet your standards and the franchise has a good chance at succeeding.
In an ideal situation, your current franchise can cover all costs and not be at risk. If this is your situation, you’re in a great position to open a second franchise. If your current business can cover half of the new franchise, you have less risk because your first location can continue to run even if the new location does not work out.
In the situation where one franchise is profitable but cannot cover the full costs of the new location, you can take on a small business loan with a lower funding amount, putting you at less risk if the new franchise location fails.
When your first business cannot help fund the new location, you run a much larger risk. It doesn’t mean you should avoid expansion, but you may want to consider why your first location is not as profitable as it could be and iron out the details before opening a second franchise.
You want to have a fallback and steady income in the event the second location fails and you still owe loan costs. Having a plan in place ensures you’re prepared and can positively impact your ability to get financing.
Physically and Mentally Prepared
In addition to financial challenges, being physically and mentally prepared for a second and third location is necessary. If you have a family and have trouble separating life from work, expect to have even less time. Two locations require more of your spare time, and if that is already stretched too thin, launching now may eliminate it completely.
You’re also going to need physical preparation. Your body will be traveling back and forth to multiple locations, which is taxing and does not leave time for fitness and physical health. For example, in the event both of your locations have equipment issues, instead of fixing one broken machine then being able to take an hour to go to the gym, you’ll have to find a way to fix both, potentially eliminating your workout time.
Before doubling and possibly tripling your work, look at how you can incorporate healthy living and mental downtime into your routines. If stress and a lack of time are already factors in your daily life, you may not want to increase their levels and potentially damage your mind and body.
Write out a realistic schedule with options you can stick to, including:
- Meal prepping healthy foods and subbing out snacks
- Adding a block for in-person or teletherapy sessions
- Mapping out times for fitness or exercise to keep your body and mind on track
Once you have this written out, consider these aspects in your current situation. When someone asks you to do something and you say you’re too busy or you need to finish something at work, consider what it will be like having a second or third location.
If you rarely run into situations where you don’t have the time to go for a run, cannot head to dinner with your significant other, or have to work vs. enjoying the weekend, this may be a sign that now is the right time to open a second and third franchise location.
If you’re ready financially, physically, and mentally for the second and third location, congratulations! The next step is easy: it’s all about finding the best possible location to succeed.
Choosing the Location for Your Second and Third Franchise
Some franchises require no competing locations in a set radius, while others have stipulations to allow for “friendly” competition. Unless you are limited and have no other choice, you can use your current location data with publicly available resources to determine which regions provide you with the best opportunity to succeed.
Start with the customer demographics that use and do not use your franchise’s products and services. Create a list of the basics which can include:
- Disposable income
- Singles
- Families
- Gender
- Age range
- Ethnicity
Once you have this, pull the zip codes for the areas around your potential location and go to the census bureau website. You’re able to search by zip code and city to find data about the people who live there. If the demographics match your user base, this may give you a better opportunity to bring in business.
Next look at complementary and competitor brands. These can be franchises, retailers, and similar stores. If you run a fast food franchise, for example, are there similar fast food restaurants that people visit? This could mean you can take and share some of their business. If there are sandwich shops and taco shops but no burger shops, you can fill that missing void.
If there’s a competitor or the same franchise nearby, you’re going to have to compete, making your job harder. In this situation, such locations are not ideal if you have a choice.
Here’s another step you can take. Go to the city or town’s website and research development projects that are in the works. If your franchise caters to families with small children, and there are elementary schools opening, this is a good sign there will be an influx of customers moving in or currently living there.
Similarly, dog parks can bring in a mix of singles, families, and couples who have disposable income. And if the location is investing in an entertainment district (theaters, restaurants, or a river walk), chances are that couples and young professionals will be buying up the condos and frequenting.
Adjust Your Marketing Strategies
The last step in deciding if this is the right time to expand your franchise business is determining if you can market to a new audience, or if you’ll need help. Just because the customers have the same demographic profile does not mean they have the same needs.
You could have families with teenage kids as customers, but if their backgrounds are different, you’ll want signage and messaging that meets their unique needs. The same goes for income. The way your customers engage with advertising could be different too. Some cities and regions have people that prefer walking and being outdoors, so outdoor advertising gets their attention. Others live in rainy climates and places that get cold in the winter. For them, running ads on their screens may be more effective.
For the outdoors regions, your messaging can be about coming in after a hike to enjoy the services. When it’s cold, offering partnerships with delivery services and focusing on the theme of “quick, warm, and comforting” may resonate best. Your message could be about enjoying the product without having to brave the cold.
If you have the cash flow available, you may want to hire a consultant that works with local marketing and advertising to help you learn the new market nuances so you can meet their needs and begin building their love for your new franchise location.
Opening your second and third franchise location is exciting. When you go in prepared with the cash flow, correct mindset, data, and marketing plan, you have a better chance at succeeding.
