The next step for any successful restaurant business is its expansion. Restaurant owners mainly turn to the Franchise route because of their own lack of time and the resources required executing the expansion of their Restaurant Brand.
In simpler terms, Restaurant Franchising is a way to expand your business, wherein you (the Franchisor) give a license to independent owners (Franchisee) to use your Trademark, business model, and processes in order to sell or provide services under your Brand Name.
If you think you are ready to expand your restaurant business, and venture into Franchising, here are the ten steps that will guide you through the entire process.
1. Current Model Evaluation
Before you start looking for business partners and roll out your Restaurant’s Franchise License, you should evaluate your business from end-to-end. The most important aspect to consider is, is your concept scalable? Can it be systemized and standardized? Often, Franchise Outlets fail because they are not able to maintain the consistency and standards of the main Brand. There is always a risk of dilution of the Brand Name if the Franchise Outlets do not perform well.
Also, the current business model needs to be profitable. Evaluate the cost structure of the cash flow for the first year and what would be the five-year-return to the Franchise.
The cost structure includes the following-
- Initial set-up cost
- Infrastructure development
- Equipment required
- Marketing plan
- Human resource
2. Robust Process
If your concept is replicable, then you need to establish a robust and efficient process to ensure consistency across outlets. The main aspects are-
- Sales Reporting and Tracking
- Stock and Inventory Process
- Staff Training
- Payouts and Commission Management
Managing the business of multiple Franchise outlets can be a daunting task. Thus, using Franchise Management software helps to resolve multiple of such tasks. Ask how to make use of a centralized POS to control multiple Franchise Outlets here. It is important to define clear guidelines and processes for the Franchises.
3. Trademark and Logo Registration
Registering your Brand’s logo and acquiring a trademark is one of the most important, yet often most ignored steps of running a business. When you begin to think of Franchising your restaurant, registering for a trademark becomes essential.
In order to protect your Intellectual Property, Franchisor should get everything registered, in order to protect from a fraudulent Franchise party.
4. Cost Estimation
After deciding the processes, you need to prepare an initial set-up cost or investment plan for a Franchise. It should have all the possible heads of expenditure. Based on your restaurant’s business model, divide the initial setup costs.
- Location (Rent for three months)
- Electric and Electronic Fittings
- Branding / Signage (Interior / exterior)
Licensing & Establishment Cost
- VAT/GST registration
- Local Municipal Licenses
- Liquor Licenses*
Working Capital Requirement (For first six months)
5. Cash Flow and Financial Projection
Based on the current and the past sales of your restaurant, consider the current Cash Flow and the Financial Projection. The Franchisor should prepare a cash flow for the revenues based on the number of orders per day and multiply it by the average ticket size.
For example, if your outlet gets 56 orders on weekdays and 70 orders on weekends, the total orders in 30 days would be 1,792 (56X22= 1232 and 70X8=50). With an average ticket size of Rs 400, the monthly revenue of the outlet will be Rs 7,16,800.
Further, the franchisor should estimate the expected average growth rate and project it for the first twelve months of the business of the franchisee. Also, project revenues for the first five years or the tenure of the Franchise.
6. Brand Profile
Prepare a Brand Profile and in order to give a better understanding to your Franchisors. The documents should contain the vision of the brand. It should also give the vision of the Brand give a brief detail about the products and services offered along with the schedule of the opening of the new outlet. You also need to mention what kind of support you would be providing to the franchises before and after the establishment.
7. Franchise Agreement
Since there are no laws specific to Franchising, it is important to have a registered agreement between the two parties to protect the rights of both the Franchisor as well as the Franchise. The agreement should clearly speak about the payment, plan, tenure, schedule, royalty, and the support the Franchisor will provide to the Franchise.
At times, the Franchises stop paying the Royalty once the business has been setup. And there is no law in the protection of the franchisor where it can sue the franchise or take away the rights to continue the business. The Restaurant times contacted many franchise consultants to get the real picture. One of the consultants working for a leading exhibition company said, “There is no law in favor of a franchisor. Even if you get a registered agreement, it can still be tough to get hold of the franchise because there is no law for this“.
Training of the Staff is essential to maintain the standards of the product as the original outlet. The Franchisor should execute the training of the entire staff, right from the Head Chef to the busboys. The induction and training of the new employees should be done much before the opening of the Franchise Outlet. Most successful Franchisors prefer to recruit at least a few employees one month prior to the opening of the new outlet and give hands-on training at the existing outlets in order to give the new recruits an idea of the level of services expected from them. Some Franchisors also employ some of their old staff at the new Outlet to train the new employees.
Related Reading: All You Need to Know About Restaurant Staffing
9. Marketing and Advertising
Based on the geographies franchise can support the franchise in marketing and advertising by including it in the major plan or help them understand the market and execute marketing activities on behalf of the franchisee in initial days.
It is important to have a clear Brand Guideline for the Franchises to adhere to. Clearly, outline what all tasks the individual Franchise Outlets are responsible for, such having a Social Media presence, listing on Restaurant Review Sites, etc. Remember to provide templates, logos, and other Brand specific items such as menu design to ensure consistency across all outlets.
The franchisor should clearly spell out the support it will give to the Franchise. For example, some Franchises only offer support in Infrastructure Development, operations, training, and Software, while some also supply raw materials. The Support should be mentioned in the Agreement to avoid any confusion later on.
Replicating the success of an already established restaurant is quite a daunting task. There are multiple challenges at each level, the primary ones maintaining the consistency in terms of the taste of the food and the service provided. Basically, the entire Guest Experience needs to be replicated, almost exactly. Even then, there are several factors such as the Target Customer Base and the Location that play a crucial role in the success of the restaurant. Thus, franchising the restaurant business comes into the picture. When done right, Franchising proves to be a lucrative business approach.