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Franchising Your Restaurant Business

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  • Franchising Your Restaurant Business

    Have you ever considered franchising your restaurant? Do you ever wonder if your diner could be the next Pizza Hut or KFC, or your burger joint the next McDonald's? In the United States, franchising businesses generate employment for an estimated whopping eighteen million Americans. Restaurant franchising represents a big player in this sector, so should you be thinking of joining their ranks?

    One of the reasons given by business owners for deciding to enter into restaurant franchising is a lack of ready capital. When it comes to expansion, the main obstacle is always a shortage of investment funds and restaurant franchising provides an obvious advantage in this respect. As the franchisee provides the initial investment, growth occurs at a greatly reduced cost. For franchisors, investment in growth tends to be restricted to the development of franchising documentation and recruitment costs. Thus a considerable reduction in start-up costs is afforded in comparison with the typical sums involved in opening a non-franchised restaurant. Moreover, it is the franchisees who sign the leases and commit to the various service contracts. Therefore, restaurant franchising enables growth at a greatly reduced risk, with practically no contingent liability.

    Many restaurant owners claim that it is difficult to find and retain good managers for their business. It has been reported that turnover rates sometimes exceed 100 per cent a year. These businesses can spend months recruiting and training a manager, only to see that manager leave or, even worse, headhunted by another restaurant. Restaurant franchising avoids this pitfall by replacing that manager with a highly motivated franchisee. As the franchisee has invested his or her own money in the business, it is likely that restaurant performance will improve. Also, the franchisor's income is based on the franchisee's gross sales and not profitability, which facilitates monitoring unit level performance and also requires fewer staff.

    Restaurant franchising also has big advantages when it comes to all the work involved in opening additional locations. For a non-franchised business, the long "to-do" list includes finding a suitable site, negotiating the lease, hiring an architect and contractor, recruiting and training staff, purchasing/leasing equipment and inventory. Therefore, the number of restaurants it is physically possible to open at any one time is restricted. Under the franchise system, much of this work is taken on by the franchisee, whilst still allowing the franchisor to have financial leverage and ultimate control.

    So now we have seen the advantages of restaurant franchising, the big question is: can your restaurant be franchised? The answer is that almost any type of restaurant can be franchised, as long it is credible to prospective franchisees. This means that your business must be professionally designed, have something unique about it and also be capable of being cloned or "systemized". The most important factor, however, is that your restaurant must provide a sufficient return to both you and your franchisees, which means it will be necessary to deduct a royalty. If your business currently receives a number of unsolicited franchise requests, then that is a pretty good measure of its "saleability".

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