Every entrepreneur has heard about a franchise. But not everyone is aware of why it is so popular. So, let's take a closer look at the features of this business model, as well as its advantages and disadvantages.
What is a franchise? A franchise is a contract between the owner of a particular brand (franchisor) and the entrepreneur (franchisee), who is eligible to use the name of the brand or trademark to sell their products or services. That is a kind of lease of the trademark under specific terms and conditions of the agreement. Franchise business includes some prominent fast-food restaurant chains like McDonald's, El Pollo Loco, Blimpie, Subway and more.
The scheme of the franchise business model usually involves not only the right to use the brand and all its attributes but also transferring of such valuable information from the franchisor as the amount and direction of investment, the forecast of investment return, methods of conducting business and attracting customers. This is one of the main advantages of this business model.
In the various franchising catalogs, you can find dozens of offers in different niches from a variety of brands. Of course, you could hear about many of them, but you did not realize that they work according to this business scheme.
This form of business organization has some advantages for both beginners and experienced entrepreneurs.
Training and support. This is a crucial point that can reduce risks. Franchisor provides everything you need to learn the specifics of working in the niche, which allows you to avoid mistakes and wrong decisions. Also, you get the information about the business, sales and customer service, advertising and other issues.
Quick payback. Thanks to the information received, you can quickly and painlessly go through one of the most challenging stages in the development of commercial activities: opening and initial growth. The franchisor's support and experience are more helpful than months of training in business schools.
Brand popularity. One of the key advantages of this scheme of doing business is the ability to work on behalf of a well-known brand by a proven business model. The more famous and popular the brand is, the easier it will be to attract the first customers.
The accuracy of planning. Unlike starting a business from scratch and alone, the franchise provides reasonably accurate information for planning expenses and profits. You know how much and where to invest and what return you will get.
Territorial limits. By signing the franchise agreement, you can be sure that within the boundaries of a particular territory there will be no competition between you and other players working on behalf of the same brand. Thus, it is possible to concentrate on the development of their business, instead of fighting with competitors.
The barriers to launching. The primary assets needed to start a business under this model are management experience and a specific budget. There is no need to search for ideas and solve many other issues.
There is nothing perfect in our world, especially when it comes to business, where you often have to compromise.
Cost. Buying a franchise is expensive. Sometimes the amount can be somewhat considerable, especially when it comes to the popular brands within the city or region. In addition to a one-time payment, there is still a need for monthly fees.
Restrictions and standards. By signing the agreement, you agree to obey specific requirements, the list of which is determined by the owner of the brand. Sometimes these requirements are stringent when it comes to the model like McDonald's.
Reputational risk. The advantage associated with the reputation of the brand may turn into a problem. We are talking about situations where there are difficulties with the founder of the brand. If the reputation of the franchisor suffers, the negative consequences will undoubtedly affect you too.
The bankruptcy of the owner of the chain. If the owner of the franchise decides to close its stretch, you will have to start building a brand from scratch. Name of the brand will have to be changed. Well, if you already have a good base of loyal customers by that moment, this will decrease possible negative consequences.
As you can see, despite the advantages of such a business organization, risks cannot be avoided.
To promote the brand, you will need to make a minimum of effort, because it is already in most cases done for you. And all actions are well calculated, and the yield to payback is almost guaranteed.
Is it worth doing a franchise business? You will be able to answer this question during the process of searching for proposals and evaluating ideas.
Owning a fast-food franchise can be an incredibly lucrative business, but it requires a lot of cash. You must have at least $ 750,000 in liquid assets to open a McDonald's or Taco Bell restaurant. To open a KFC, your asset should be at least $1.5 million. In addition to the initial investment, which can exceed $1 million, most networks still require monthly fees that can cost 12% of gross sales.
To create a strategy and model for your research, you need to evaluate your skills and preferences, consider your past jobs and determine what you liked best and least about them, then make a list of your strengths and weaknesses. You will need to decide on how much money you can invest and how much you would like to make.
An inexperienced person may approach the process by thinking, “Well, I love donuts. How about a donut franchise?” And after spending days or weeks of research on Krispy Kreme, Dunkin’ Donuts, and others, the individual may find he does not have the required capital, the territory he wants is not available, and he would have to relocate to the food franchise he wants.
With thousands of franchise companies available, keeping an open mind is the best strategy you can employ to get on the ground floor of that new, hot concept or to find something that will take off in your market.
Any brand you are considering buying into, go for a visit! Buy some food, sit in the dining area and observe. If the owner is in (and they typically are), ask them some questions. How long have they been operating in that location? How is the business? How are they managing their food costs, labor costs? What is rent like? Did the brand give them an opportunity to choose their own location or were they only given options of some pre-determined locations? How many hours a day/week do they have to work to keep the business afloat? What are the profit margins?
Make sure you will check Better Business Bureau (BBB) and your state’s Attorney General’s office for any complaints against your franchise stretch filed. They collect complaints related to franchises.
Let’s say you have found an assortment of franchises that look promising. What do you do next?
Contact the franchisors and request information about their concepts. The company will provide some brochures, website information, and video material. You may need to fill in an application form with your experience history, education and preferences information included.
Next, you will get the company’s FDD (Franchise Disclosure Document), a document every franchise in the United States is required to provide. You will get more information history of the company, the training and marketing programs, and what costs, royalties, and fees you will be required to pay.
If your franchisor organizes a “discovery day,” it is an excellent opportunity to attend it and ask any management questions. You will leave it with a good understanding of the franchise chosen.
After your application is approved, you will need to sign the franchise agreement. Check it out with a lawyer to make sure all the terms and conditions are clear.
Along with the franchisee fee (which can vary anywhere from $100K - $1 million plus), you will also need money for construction, kitchen equipment, and insurance. You will also be paying for rent during the construction phase so be sure to budget for that expense as well. Call around to get some quotes and budget another $300-$700K.
Some franchisors offer to fund their franchises. As an option, they may have developed good relationships with banks which will extend a loan so that you can buy a franchise.
The Small Business Administration and bank institutions can also guarantee loans.
Now you should pay attention to the technical details of your business.
You need to find the appropriate location, hire staff, obtain the recommendations on equipment, process lines, workflow, and a list of reliable vendors. Finding out the occupancy of the location chosen is important. You can come and evaluate the number of visitors in the restaurant area. Just count how many people visit food area within an hour. And pay attention to competitors - neighbors in your location.
In accordance with the technological line, it is necessary to purchase equipment, not only for cooking, but also refrigeration equipment, coffee machines, cash registers, furniture, and more.
An essential factor in the successful opening of a fast food restaurant is advertising technologies: displays, menu boards, signs, shop windows and other design solutions.
Ensure product quality control at all stages. Products have to pass veterinary inspection. It is also necessary to follow the conditions for storage of the products, temperature, and expiry dates.
Think about how you are going to manage staying compliant with health and safety standards, labor regulations as well as the conditions of your franchise agreement. One bad audit in any of these areas could put your business in jeopardy.
Think about a soft opening. It is an excellent opportunity to get an honest criticism. After receiving the necessary information, the restaurateur eliminates weaknesses to present a great product to the public later.
A grand opening should be bright and attract visitors. Think about balloons, banners, and small prizes. Choose the best date when most people are off and will be able to visit your restaurant. Different methods of advertising should also be considered: media ads, TV, radio, popular social networks.
As a rule, a website plays a significant role in any business. The main aspect of a website is to improve the reputation of the organization. The website provides all the necessary information about the services and products of the business. The company's products and services are advertised on the website. It helps to attract new customers and buyers to increase sales.
To have a website for a restaurant is a great way to show off your dishes and give people an idea of your restaurant. Attract new customers with high-quality photos of all the fantastic dishes you offer.
Your clients can easily book a table through your restaurant website, without any calls.
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Building a website based on a ready-made website template is quicker than designing and coding everything from scratch. You can save your time and let an experienced TemplateMonster team do this for you at an affordable rate. You need to provide your project information (compatible hosting and login information) to get started. Typically, installation is completed within 3 hours, and you will be able to test your website after.
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The allure of owning your own business beckons many Americans.
When it comes to buying a franchise, restaurants are a common choice. Before diving off the deep end, those considering buying a restaurant franchise should do some research. Research opportunities, contact a source to buy a franchise, and start preparing to open your successful restaurant. Follow the steps discussed in the article to build an effective business.
May your business flourish!
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