If you are a pro and have already aced your culinary and business skills, then it might be time for you to expand your restaurant via franchising. But how to franchise your restaurant?
When should you franchise your restaurant? What are the pros and cons of this? Don’t worry; we have all your answers in this guide!
But did you know according to the U.S. Census Bureau, franchises represent more than 54% of total fast-casual and fast-food restaurants in America? And if you also want to be a part of the same, then make sure to read this guide till the end!
Introduction To Restaurant Franchising
There are many ways to expand your restaurant, but by franchising it, you can expand your restaurant’s name internationally and acquire plenty of customers.
Franchising works by allowing the business owners to lean on the resources of the parent company’s expertise and resources. At the same time, it allows the parent company (You) to expand your brand by accessing start-up capital for your business.
McDonald’s franchise is the best example of franchising a restaurant – more than 95% of McDonald’s are franchised stores. Many other popular restaurant franchise names include- Chick-fil-A, Taco Bell, Arby’s, Subway and more.
You must note that a franchise is different from a chain restaurant, such as Chipotle or Starbucks. A chain restaurant is owned and operated by the parent company itself.
When Should You Franchise Your Restaurant?
So, if you also dream of franchising your business, then the next step for you is to ask yourself some questions to determine if this is the right thing for you:
- Is your restaurant popular and successful in your area?
- Is your restaurant scalable?
- Can you commit yourself to building a franchise system?
- Can your brand be protected?
- Do you have the capital to get started?
If your answer to the above questions is “Yes,” then franchising your restaurant might be good for you.
The next step for you is to determine your goals and assess your situation.
You can achieve multi-unit restaurant expansion either organically by funding and managing your business on your own or by securing backing from investors. Or you can expand your restaurant by franchising.
There are pros and cons associated with every option. So, you must evaluate and determine which type of business model would be the best for you.
If franchising seems like a befitting option, then the next step is to learn about the franchising process.
How To Franchise Your Restaurant?
So if you have made the final decision to franchise your own restaurant instead of buying an existing franchise, then here’s how you can franchise your restaurant:
1. Assess Your Current Restaurant Business
We get your excitement, but before jumping right in, hold your horses! The first step before you learn how to franchise your restaurant is to determine the current situation of your business.
Start by evaluating these questions:
- Is my restaurant profitable?
- Will my restaurant’s concept work in multiple locations?
- Can I easily standardize my process?
After this, you must think about the most common setbacks you may face, including:
Demand
Starting a business with no demand is a complete disaster. You must do market research and ensure that your restaurant business has enough demand in the area you want to open.
If your market research indicates little to no success, then you must keep marketing your current business before starting to franchise it.
Liquidity
You might have an emergency fund tucked away to take care of any unexpected catastrophes that may fall on your restaurant. But do you have a sum large enough to open another restaurant?
Scalability issues
Suppose you have opened your first franchise outlet that is identical in every sense, be it the menu, building, prices, suppliers, etc. You will double your workload.
And even though you would have a franchisee, as a franchisor who is just starting out, you would have to be involved deeply to make your first or first few franchise outlets run smoothly.
2. Standardize Operations
A successful restaurant franchise is one that can be recreated easily by a franchisee in a different location.
By documenting and standardizing each step, you can ensure that the franchisees are able to replicate the same quality and customer service.
For this, you should pen down a solid process for everything right from procuring raw materials to recipes, food prep, staff training, etc.
3. Protect Your Brand
When you franchise your restaurant, you are given the right to use your brand’s name, logo, and tagline to the franchisee.
So, to avoid any legal issues, obtain a trademark from the U.S. Patent and Trademark Office to protect your brand’s name, logo, and tagline.
This step will distinguish your restaurant from competitors and will give you the nationwide right to use your trademark.
4. Develop Your Restaurant Franchise Plan
Sit with a business analyst, attorney, and financial planner to come up with a franchise plan. These professionals will help you in analyzing sales, property costs, financial forecasts, taxes, etc.
This information will help you in determining your franchise fees, initial investment cost, required capital, royalty, and marketing fees that you should charge, among others.
Lastly, this step will help you determine requirements for property, equipment, and ownership.
5. Establish a Legal Structure
According to legal experts, it is advised that you establish a franchising company that is a separate legal entity from their primary restaurant company.
So when the paperwork is done, and you start a joint venture with a franchisee, your restaurant should be divided into three distinct companies with their own set of books. For example:
- ABC Franchising, LLC (the parent company for every future franchise location)
- ABC, Inc. (your original restaurant)
- ABC Springfield, Inc. (your first franchise location)
Should any one of these entities face any financial or legal trouble, the other two companies would remain safe.
6. Create Your Franchise Disclosure Document (FDD)
The above step will also help you prepare an FDD for franchising your restaurant.
An FDD is a document that contains 23 “items” that disclose all the necessary information about your franchise, including but not limited to:
- All kinds of fees,
- Previous year’s performance
- Terms and conditions of franchising
- Type of business model
- Number of outlets that opened and closed in the previous years
- Legal obligations
- Franchise term
- Start-up costs
- Management team, etc.
You must hire a lawyer who is an expert in the franchise field to get your FDD prepared.
7. Get a Franchise Agreement Made
To avoid any clashes between you, the franchisor, and the franchise, get a franchise agreement prepared. This legal agreement should contain the responsibilities of each party and the consequences of not meeting the same.
8. Build Franchisee Resources & brand Guidelines
Come up with a resource library that contains all information, including how to find a property, acquire permits, work with suppliers, using restaurant franchise management software, franchise billing software, train employees, etc.
This guide would help the franchisees in the process of opening and operating their restaurant with minimal doubts and hiccups.
Along with this, you must also come up with brand guidelines. This might include rules for logo files or social media, interior design requirements, menu templated and more.
9. Market Your Restaurant Franchise
The last step in starting your restaurant franchise is to market it in order to find potential franchisees.
If you do not have time to invest in marketing your business, then do not be afraid to hire or outsource a marketing company. This is a very important step, and so you must not overlook it.
Pros & Cons of Franchising Your Restaurant
Like any business, there are both pros and cons to franchising a restaurant business. Let us have a look at them both:
Pros of Franchising Your Restaurant
- Although you need to be involved in the daily operations of your franchisees initially, a large part of the operation is taken care of by them only.
- Since franchisees put in the initial start-up cost, you do not have to pay a big sum in order to expand your restaurant business.
- Ability to grow your restaurant internationally.
- Offers name recognition.
Cons of Franchising Your Restaurant
- Although the franchisor charges royalty and marketing fees, it takes time for you to actually start seeing profit from your franchisees.
- As a franchisor, you might need to set strict requirements, such as net worth, liquid capital requirements, and experience requirements, to find the right candidate.
- You would have to get involved in case of any issues or legal troubles that your franchisee gets in with your brand’s name.
- Poor service will affect your brand name.
Is Franchising The Right Path For You?
Dreaming about franchising your restaurant is one thing, but there is so much to think about before you actually take the plunge. Franchising might be right for you if:
- You have received numerous queries from potential franchise owners.
- Your menu and business model are easy to replicate.
- You have the resources to communicate and manage each franchisee.
- You are looking for ways to diversify your income stream.
- You have a reliable network of suppliers.
- Your menu and menu items are unique and popular.
Wrap Up
Franchising your restaurant can open doors of opportunities for you, allowing you to expand your business nationally and even internationally and increase your income.
However, doing this is not easy. Right from arranging the cost to franchise your business, completing the legal requirements, coming up with a plan to marketing, etc., there is a lot to take care of.
But by following the right steps, you can achieve your dream!
We hope this guide on “How To Franchise Your Restaurant?” was useful to you.
FAQs
What is the difference between a restaurant and a franchise?
An independent restaurant is locally owned and operated with just one or a few locations in the area. In comparison, a franchise restaurant is a locally owned entity that is a part of a recognized brand.
Do franchise owners need to work long hours daily?
The franchise owner is responsible for the day-to-day operations and ensures that everything is carried out smoothly. If he has a great team, this task could get easy. So it is upto the franchise owner as to how much they want to work in a day.
What percentage of franchises fail?
The failure rate of franchises can vary greatly depending on the type of business model you have, demand, brand popularity, etc. However, the failure rate for franchises ranges from 20%-50% on average.
What software can help in the smooth management of a restaurant franchise?
Here are a couple of softwares that you can get in order to manage your restaurant franchises easily: