Franchising a restaurant is a great way to own a business. A franchise enables you to leverage the benefits of a well-established brand with proven management and work practices and an established customer base. But how do you know the right restaurant franchise to open? Choosing the right restaurant franchise requires careful assessment and comprehensive research of the brand’s management, market potential, and competition. You have to do your due diligence. Below, we outline four factors you need to consider when buying a restaurant franchise.
- New Vs. an Established Franchise
When choosing a restaurant franchise, deciding to start a new franchise or buying an existing one should be the first consideration. Both options have their advantages and disadvantages.
Buying an existing restaurant franchise provides you with an established track record of profitability, a trained workforce, in-place supplier relationships, and an established customer base. You also make an income from the first day. However, all this doesn’t imply the business will work for you. Ask the franchiser for financial statements for the last three years. This will give you a deeper understanding of the business’ performance, which is integral during negotiations.
Although an existing franchise provides the safer bet, the risks of a new franchise offer potentially greater value. With a new franchise, you begin with a clean slate: a startup unaffected by customer impressions or shortcomings of the initial owner. New restaurant franchises also cost less because you don’t need to buy past cash flows from an existing customer base. Although this approach might be challenging, you will find satisfaction in knowing you established a successful restaurant franchise from scratch.
- Brand Perception
Before purchasing a restaurant franchise, ensure you evaluate how customers perceive the brand. This way, you will ensure you don’t get stuck with a business known for delivering inedible meals or providing poor customer service.
- Total Cost
In most cases, most restaurant franchisees underestimate the franchise’s total cost, ending up spending more than their initial budget. For example, royalties might seem insignificant on their own, but when included in the initial cost of the franchise, they can influence your decision. Also, you might pay upfront charges. If the franchise fee exceeds $200,000, you might consider another option where you can invest this extra cost in business operations instead. Besides, you might be required to pay other charges for marketing campaigns, renovations, additional supplies, training programs, or even hand over a certain percentage of your annual revenue. Sometimes, these charges get hidden in the franchising agreement, so ensure you read it carefully.
- Management Flexibility
Buying a restaurant franchise has some operational restrictions. Several franchises have guidelines on how you should operate and market the business. Before signing the dotted line, ensure you evaluate these limitations with the help of the franchise’s corporate office to determine how much control you’ll have over your business. If you want the freedom to decide what seasonal deals and promotions to run or what suppliers to deal with, choose a franchise that allows more flexibility. If you want to direct your efforts to daily operations, then you should select a franchise that handles most of these management roles for you.
If you plan to run a restaurant, a restaurant franchise is an ideal way to get started. However, it can only work for you if you do your due diligence, learn what to expect, and give it your all.