Multi-unit franchising — that is, investing in more than one franchise location at the same time, is becoming a popular approach to franchising, with franchisees and with franchisors. For franchisors, it’s nice to have one great franchisee running multiple locations instead of adding to the risk with multiple franchisees.
For franchisees, multiple locations can increase revenue by two or more without increasing all the costs and hours worked by two or more.
And the franchisee who has one franchise location on the east side of town and one on the west side of town can put a terrific manager in each location and feel confident.
But some multi-unit franchise arrangements cross state lines. At that point, you can face some complications.
Your franchise locations will be in different tax jurisdictions if they are in different states — even if they’re both in a border town like Kansas City or Texarkana. You’ll have to make sure you understand the sales tax systems in both states, and you must file tax returns in both states. A pizza franchisee might be required to charge sales tax on delivery charges in one state but not in the other. Certain foods are taxable in some states but not in others, and services may be taxable in one state but not in another.
Truth to tell, there can even be differences from one city or one county to another. If you’re considering investing in multiple franchise units, it’s smart to talk with a CPA in each jurisdiction. If the two franchise locations are in two different states, it’s mandatory.
Just as you’ll be dealing with different tax offices, you’ll also probably have bills from two different electric companies, two different gas companies, and so forth. You may have separate phone bills and internet service bills, too. Each company will have its own schedule of fees and charges.
At this point, things can get complicated. It’s very easy to make mistakes in this scenario, and that includes simply not catching mistakes in the bills because there are so many. Think about having one person responsible for the bills in each unit, and be sure to set up an excellent filing system, perhaps with both electronic and paper files. If you’re confident about your accounting software, electronic systems might be enough, but don’t skip paper filing unless you’re completely comfortable with your software.
Labor laws, including minimum wage requirements, safety regulations, and more, can be different from state to state. Nonetheless, you’ll still have federal regulations as well. Some of the factors that determine whether you must follow federal or state regulations include the following:
- size of business
- type of business
- age of workers
- relationship of workers (that is, family members may be subject to different rules from other workers)
Since the rules may be different from one state to another, it’s important to be completely clear on the rules in each place. Even if you are just stepping across the street in a border town, think twice before you assign the same workers to different locations. It may seem very practical to split one worker’s time between two locations instead of hiring two part time workers, but check with your attorney first to make sure there are no complications.