Should I Franchise My Restaurant?

Is Franchising Your Restaurant right for you?

Do you have a successful restaurant that’s ready to grow? Franchising just may be the best fit.

According to a study by IHS Economics and the International Franchise Association, both quick service and table/full service restaurants will continue to be among the growth leaders among franchise business lines in 2017. The franchise table/full service restaurants business line is expected to post the fastest pace of output growth among the 10 business lines in 2017, with sales up 6.8%. This will translate into higher productivity, as they project a 3.9% increase in employment in 2017.
What differentiates these restaurants from yours, and do you think joining them will be the best for your restaurant?

Why Franchise Your Restaurant?

Money. People. Time. Generally, these are the three reasons companies franchise their restaurant.

With growth, capital is a big barrier for most restaurateurs. However, in franchising your restaurant, your costs are lowered significantly due to the franchisee providing the initial investment in the restaurant.

As a franchisor, your investment of expansion is substantially limited to the development of your restaurants franchise documentation and recruiting costs – a significant reduction from the typical costs of opening a restaurant. You also grow with essentially no contingent liability, greatly reducing your risk, as the franchisee signs the leases and commits to various service contracts.

Finding and retaining reliable unit managers is another barrier many restauranteurs face. With an excessive turnover rate that can exceed 100% per year, a restauranteur can spend months recruiting and training a manager only to see that manager leave or hired by a competitor.

In franchising, the restauranteur avoids these issues by having a highly motivated franchisee for that unit manager.

Also, a restaurants AUVs will generally improve since the franchisee has ownership in the unit. From The difficulty of overlooking unit level performance becomes significantly less cumbersome as less staff is required.

Opening a new unit takes time – the amount of restaurants you can open at any given time is limited.

You’ll need to:
– Find a Site
– Negotiate the lease
– Hire the architect and contractor
– Financing
– Recruiting staff
– Purchase or lease of equipment and inventory
– Training staff
The list goes on and on.

How does franchising solve the problem of restaurants having too little time, staff and few resources? The franchisee does the heavy lifting. This allows the restauranteur both financial and resource leverage.

Criteria to Franchise a Restaurant

Most restaurants can franchise providing they meet three basic criteria:
– Salability: Your restaurant must be credible to prospects in order to sell franchises: professionally designed, unique in some way, and most importantly it must have “sizzle”. How do you measure the “Sizzle Factor?” If you currently receive unsolicited franchise inquiries, that is a good indication that your franchise will sell.
– “Clone-ability”: You will need the ability to clone your restaurant. Some high-end restaurants like Ruth’s Chris franchise successfully, but not all do. The primary criteria here: teachability and systemization. If your restaurant needs a hig-end chef, you should rethink your expansion strategy.
– ROI: One of the most important criteria. Both you and your franchisee will need an adequate return from your restaurant. This means you will need to deduct a royalty, adjusting the franchisee’s potential return. Your restaurant will be a good candidate for franchising if your franchisee can generate an adjusted 15% ROI on a mature franchise.

Ready to Take the Next Step?
If you make the decision to franchise, first you must address many issues confronting a new franchisor:
– Speed of growth
– Territorial development
– Support services
– Staffing
– Fee structure
These are only several of the most important issues. And of course, your plan should be subjected to severe financial scrutiny.

Next step: Develop a franchise contract, a franchise disclosure document (as required by the FTC) and, depending on the location of franchises being sold, state registrations (both Florida and Texas have filing requirements).

Quality control generally translates into the development of an operations manual and well defined training programs (if not in place already). Your manual should contain everything on:
– How to open and operate your restaurant, however, there are certain protections you may need to build in relative to the protection of recipes (use of spice packets, etc.).
– Quality control checklists
– Policies
– Procedures
– Tactics that will allow these systems to be uniformly enforced (be careful to avoid anything that creates liability).

You will then need to generate franchise prospects and develop marketing materials for franchise sales. On your website, you will need to incorporate your franchise message. Also, due to the franchise sales process being highly regulated, you will to be properly educated in sales, disclosure and compliance techniques.

If you decide franchising is right for your restaurant, you will soon experience that you’ve entered a completely different type of business: selling and servicing franchisees. You will also learn that the ultimate key to success in franchising is having successful franchisees. And if you can create successful franchises, than you may just become the next McDonald’s.