Franchising is a vital part of operating large restaurant chains. This model allows franchisors to expand their brands, collect revenue from fees and avoid paying certain expenses by giving the franchisees the responsibility. A restaurant franchise can be very profitable and rewarding for the owner as well, but it often takes more time, money and hard work than initially thought. Learn more about what a restaurant franchise is and its advantages and disadvantages before you jump in.
By definition, franchising is a type of business organization through which an established company or franchisor with a successful service or product enters a continuing contractual relationship with another business or individual who operates under the franchise trade name in exchange for a fee. This is a relatively simple way for entrepreneurs to build their own businesses without excessive start-up costs.
Types of Restaurant Franchises
Many people who think about restaurant franchises initially consider fast-food or quick-service establishments that sell already-made food items and don’t offer table service. Fast-food customers generally pay for their meals before eating and have the option to take it with them. However, full-service restaurants that offer table service and a variety of drink and food options can also be franchises. Customers generally pay for their meals after dining. Fast-casual restaurants can be franchises as well. They offer over-the-counter ordering from a larger menu compared to fast-food chains but limited table service. Determining the type of restaurant that you want to run is essential when you’re in the market to purchase a franchise.
Advantages of Restaurant Franchise Ownership
There are many benefits of franchising a restaurant if you have an entrepreneurial spirit. The primary advantage is minimal risk. Many restaurant franchises have hundreds of branches, and some have thousands, which is a testament to their success. When you buy into a successful arrangement, there’s a lower chance that the business will fail. Some other benefits of becoming a restaurant franchisee include
- turnkey ready
- comprehensive training,
- easy financing,
- existing demand, and
- turnkey ready business.
Restaurant franchises are ready to launch as soon as you unlock the doors. Most franchisors offer turnkey packages that include everything that you need to open your restaurant, which saves you from researching a location, building and designing the branch, creating a menu, buying inventory and marketing the grand opening.
Disadvantages of Restaurant Franchise Ownership
Along with the advantages of owning a restaurant franchise are disadvantages. The biggest detriment is the high initial cost of ownership. Several franchisors require that you have hundreds of thousands in assets or cash reserves and a net worth of $1 million or more. There’s no average cost because the price depends on several factors. However, you should expect to pay at least $20,000 for the initial purchase. Before you sign a contract with a franchisor, you also need funds to pay for
- annual royalties;
- building maintenance;
- employee benefits, salaries and uniforms;
- kitchen supplies;
- local zoning compliance;
- ongoing interest on financing;
- product inventory; and
- rent and utilities.
Furthermore, the training that you must complete isn’t provided for free. It often lasts a few months, so you need money to cover lodging and transportation expenses. Other disadvantages include long hours, the challenge of recruiting and retaining quality staff, and limited growth and independence.
Other Aspects to Consider
Before you decide to contact a franchisor, there are other considerations that you must take into account. For example, some franchisors require that franchisees buy and operate more than one branch. A lot of them also require that you have business or restaurant-related experience before your training. Furthermore, having a business plan is important for obtaining financing and demonstrating to the franchisor that you’re capable of running a profitable restaurant.
Getting started in the restaurant industry can be overwhelming yet thrilling. Understanding the pros, cons, and financial and contractual requirements can help you decide whether or not owning a restaurant franchise is right for you.