While the restaurant business, as glamorous and lucrative as it may seem from afar, is tough. For first-time restaurateurs, who have little insight or experience into the business, acquiring the Franchise of an already established brand seems like the best way to step to step into the restaurant space-the brand name is already there, with a set market share. However, before you go ahead and sign the Franchise Agreement, make sure that consider the following aspects which must not be missed.
Before you go ahead and pay the Franchise Fee, make sure that you consider certain aspects which are often missed.
Restaurant Franchise Checklist
1. Who is the Franchisor?
Before buying a restaurant franchise you should check the history of the Franchise, its shareholders, officers, and directors. Do you research- investigate about the restaurant brand – how long it has been in existence, what has the business been like for other Franchise owners. It is important to consider if the Franchise chain has been successful in a regional market or is it popular PAN India. When you are investing in someone else’s brand, make sure that it has a name and brand recognition in the market.
2. What is the Financial History of the Franchise?
Before investing your life’s savings into the restaurant franchise, you should make sure that you check the financial history of the Franchisor. Check how many Franchisees are already operating in the market, and if possible also their financial details.
- It is also important to know the success rate of the Franchise Chain.
- Find out how many of the outlets have been operating for more than three years and how many have failed.
- It is worth talking to the other Franchise owners and finding out whether they made a profit or broke even.
- Don’t get fooled by the Average Income of the Franchise Chain, as the earning of individual outlets may be less, and the Average Income inflated because of the success of one popular outlet.
3. Is the Franchise Right for You?
Before you invest in the Franchise, pause and think if the particular chain is right for you. Franchises have their set criteria for lending out its brand name. However, even if you fulfill those criteria, you should still consider your abilities, and the help and support you’d require from the Franchisors, and whether or not they would provide it. Keep the following points in mind:
- How much money are you ready to invest? Even a Franchise business comes with its risks, so be also prepared for the losses.
- Does the Franchisor provide the management and technical support such as Hiring and Training?
- Would you have the option of opening more than one outlet in a particular area?
4. Who is the Franchisor’s Competition?
While selecting a Restaurant franchise one should look for the direct and indirect competition in the area where it will be opened. Look out for the future competition also which can come to take the share of the pie. Think about the brand recall when compared with others, and how it is different.
5. What Kind of the Support Franchisor would give?
One should clearly read the Franchise agreement in order to have the basic rights for support of the business. Since the brand name is at stake, the Franchisor have their own set of standards and policies to adhere to. The investor should be aware what kind of support he/she will get once the business into existence in terms of human resource, operations, marketing and raw material suppliers.
6. What Are the Financial Obligations?
You should clearly know about the initial franchise fee and the impending royalties. Have a clear plan about
- How you would meet the breakeven point and by when?
- How much working capital is required?
- What would be the total breakup of the franchise fee and development cost?
7. Are You In Sync with the Franchise Agreement?
Before you sign the Franchise Agreement, it is a good idea to seek advice from an independent Franchise Consultant. Also, consult with your Chartered Accountant to make sure you understand every aspect of the Agreement.
Starting a restaurant business is never easy. It not just requires a good amount of investment but it also needs the complete attention, passion and hard work to create an identity in the food service market. For people who are just stepping into the Restaurant Business, it is often suggested they take the franchise route. It is comparatively easier, since the Franchisor Brand is already established, has standards in place, and also a set market share. However, there are certain challenges are also there in the Franchise Business.
Read a detailed segment on Franchise Outlets versus Standalone Restaurants here.