You might be thinking of owning your own restaurant, looking at the lucrative profits that restaurants generate. Franchises are the best bets as you already have a business model in front of you, as well as the recipes and menus. Before you invest in a franchise, you have to find out its history and financial status, especially if it’s a new one. It might be a good idea to research your locality well, and find out which type if cuisine would work best in that area. Here are some things you should consider before buying a restaurant franchise:
6 – Things to consider before buying a restaurant franchise
1. Create a plan
You must go ahead with a plan, especially if with no money of your own to invest. To get investors to invest, you must show them the profitability of your venture. Do enough research to find out the economic profile of the location you have selected. If it is not one where people can afford to eat out regularly in an expensive restaurant then buying a restaurant franchise of a fast food chain will be sensible rather than that of a high end restaurant chain.
Your franchise has to fulfill a market niche, as then it will have a high probability of people visiting your restaurant. If the area already has quite a few fast food chains, investing in a renowned fast food known for its quality will just work out.
2. Check out the franchise requirements online
Before buying a restaurant franchise, you can check out the requirements from the restaurant’s websites. Franchisor’s or parent companies don’t hand out franchises to any Tom, Dick and Harry. Every Franchise has different requirements, for example, Applebee’s need $500,000 liquid assets and %1.5 million net worth, to give a franchise. Some franchises also require you to have some minimum experience in running a restaurant, or managing multiple unit restaurants.
3. Restaurant chains and franchises are not the same thing
One of the things you should know is that all franchises are restaurant chains, but all restaurant chains may not be franchises. Burger King happens to be a franchise and chain, but Starbucks is not a franchise. Before buying a restaurant franchise, you can just call their corporate office and find out if they offer franchises.
4. You might have to open multiple restaurants
You might have invested in a franchise which sells the cheapest fast food, thinking that you would be able to make some money. But some franchises require you to open minimum of 3-5 new restaurants within 3 years. So before investing, consider whether you can invest as much money and time in all the restaurants, as even one restaurant is tough to operate and manage. There are single unit franchises too, so you can find out about them.
5. Franchises are already recognized names
A reason for restaurant franchises being expensive is because they are already names which people recognize. When you are buying a restaurant franchise, you are actually buying a readymade plan of action, and much of your work is done for you. For example, you don’t have to spend time as well as money on the kitchen and dining room’s design, menu layout etc. The marketing campaign too is ready, and you don’t have to spend on advertising.
6. You have to follow the franchise’s rules
Some things you should know about the franchises is that there are some rules you have to adhere to in order to maintain the franchise’s reputation. Every franchise has its own rules, such as maintaining the atmosphere/ambience, food quality, taste, cleanliness, quality of service and so on. You’ll be handed a huge rulebook which you have to follow.
There is not much scope of your innovation or imagination to be used in the restaurant. You cannot create your own menus, whether you are buying a franchise of the cheapest fast food or an expensive high end boutique restaurant. If you like the stability of following rules, then franchises are a good move for you. But if you like to let loose your imagination, you should perhaps invest in a restaurant solely your own.
Advantages of investing in a franchise
- Demand: One of the advantages of buying a restaurant franchise is that the demand for it is already there.
- Financing is easy: Traditional investors like banks are familiar with the property and equipment needs of franchises, which makes getting finance easier. The revenue model is also known which creates confidence in investors.
- Success record: If you are buying a restaurant franchise, you can track the success of the restaurants in different locations. If almost all of them show a profit, then you may think of investing in the franchise.
Disadvantages of a franchise
- Initial investment: When you buy a franchise, you have to buy all the equipment that it requires, which, with no money of your own turns out to be an expensive proposition. You cannot think about investing slowly and gradually over time, but have to get everything ready right at the start.
- Legal rules and regulations: Any food business has to get all the permissions from the government, many different kinds of licenses and taxes have to be paid. You have to be ready to be checked by health and safety people from time to time. The franchise that extends or promises all help to you in this regard is the right franchise for you.
- Labor challenges: Most franchises require quite a number of low skilled labor to run the business. Training the employees needs time and money and retaining them is another challenge. It is widely recognized that finding and retaining the right employees is one of the biggest challenges in the food industry.
- Low margins: The profit margin may not be as high as you think, as you have to operate in a highly competitive environment, which is also price sensitive. Profit in service related franchises may not be as high as you might think. You also have to deal with issues like spoilage, theft etc.
You can buy a food franchise if you have the passion, enthusiasm and patience to make it a success. The hours are long and hard and your quality of life can deteriorate. But unrelenting hard work can make your restaurant a success for sure!