Should You Franchise Your Restaurant?

Ed JobBusiness Operations, Business Plans, Restaurant, Small Business TrendsLeave a Comment

Franchising your restaurant can lead to rapid growth in your community, state, or country, but there are a number of things to consider before heading down the franchise path. Selling your restaurant’s concept is a difficult task, but we are here to help.

Franchising your restaurant can lead to rapid and intense growth of your business, but there are a number of things to consider before heading down that path. Many restaurant owners dream of becoming a renowned business in their community, state, or country, and turning your business into a franchise can put you one step closer to achieving that goal.

In fact, we’ve all seen episodes of Shark Tank in which restaurant owners pitch their franchising idea to the investors. The dream is there, and it can become a reality. But launching a franchise requires a solid plan built around your restaurant’s past performance and a large amount of market research—something you’ll remember from those episodes of Shark Tank. The National Restaurant Association provides a number of things to consider before franchising your restaurant:

  • Is your business already successful? Ideally, you will start your franchising process with potential buyers who are already interested in purchasing a franchise, but you definitely must have a pre-existing successful, operating prototype. Credible management with foodservice background and differentiation from major marketplace competitors are key selling propositions you need to have at the ready when looking for potential franchisees.
  • Can you duplicate your restaurant? Franchising is cloning something that already works at high efficiency, so you need to make sure that you can replicate the parts of your business that are already working to put them in a new location. Writing down your business’s systematic processes in an easy to follow operations manual can help with the duplication process; the more teachable your restaurant’s practices, the higher the level of performance you will see at the franchise location.
  • Is it affordable to a franchisee? Franchise buyers will be highly concerned with return on investment, so you must examine all figures important to affordability and profitability: sales-to-investment ratios, food costs, labor costs, your overall prime costs, etc.
  • Will your restaurant succeed in the new location? You must take a hard look at market trends in the area that you want to expand.

Successful franchisors also must look at the legal requirements involved with franchising a business, which includes completing and registering a Franchise Disclosure Document with the Federal Trade Commission. You will be asked a wide range of questions involving past financial audits, an operating manual for franchises, and descriptions of the management team’s business experience. Beyond completion of the FDD, each state has different requirements for franchising, so further research into the location in which you want to expand will be necessary.

Funding Your Franchising Venture

Carol Tice with Entrepreneur noted, “When the right concept is franchised effectively, it can be a great expansion strategy that doesn’t require as much up-front capital as growing through company-owned units.” To clarify, company-owned units must acquire all of the funds necessary to open a new location because they own the entirety of the business, but franchisors are looking for other entrepreneurs to buy the rights to the business in exchange for a percentage of the unit’s sales.

Because franchising requires less capital, it is a much more viable option for entrepreneurs who are looking for rapid growth. And though franchising requires less up-front capital to fund growth, it still requires capital. A capital advance can provide the necessary funds to fuel this type of growth for your restaurant, and, presuming you have done your marketplace homework, will return the initial investment many times over. Capital advances fit with restaurants perfectly because a large number of the business’s sales come from credit card sales, which will directly repay your advance as the business grows. If franchising looks like a feasible option for your restaurant, visit the rest of our website for more information on capital advances.

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