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 a franchise of already established restaurant seems like the best way to step into the restaurant space since the brand name is already established and the market share is set. Now the question that comes to mind is, how do you buy a restaurant franchise and how do you decide if that is the correct franchise for you. Here we have for you a detailed piece regarding how to buy a franchise restaurant and things to consider before signing the contract so that you are absolutely sure about it. But before deciding that you want to open a restaurant franchise, take a look at the pros and cons of owning a restaurant franchise.
How To Buy A Restaurant Franchise
Here is the process of buying a restaurant franchise for your own franchise outlet:-
1. Research Your Local Market
Before buying a restaurant franchise, you need to know which type of restaurant to buy the franchise for. A number of restaurants give their franchise in exchange of a royalty fee but before signing the contract, you need to know if the restaurant format will even work in the location you want to open the restaurant in. Thus it is best if you research your local market beforehand, understand what type of restaurant format works where and then decide which restaurants to reach out to in order to open your franchise outlet, for example, a QSR will work best in a busy market area with a high footfall like a shopping street or a university campus. On the other hand, a fine dining will work best in a posh locality.
2. Decide The Restaurant Franchise Model You Want To Open
Once you have finalised which restaurant format you want to for, next is deciding the restaurant franchise model you want to deal with. There are different ways in which companies give their restaurant franchise. These are classified into different models. These models include:-
- Master Franchise Model
- Company Owned And Franchising Model
- Company’s 100% Ownership
- Joint Venture Model
To understand more about these restaurant franchise models, click here
3. Examine Your Budget
Based on the model and the restaurant company you choose, different franchise outlets will entail different costs. You will have to pay a royalty fee to the franchisor and depending upon the terms laid down in the Franchise Agreement, there may be additional costs. Create a budget for yourself and stick to it. If you feel that a restaurant franchise is exceeding your budget but can cover up for it in profits, have some sources to procure funds from handy, but take the final decision after considering all your financial risks.
4. Examine Your Constraints
Apart from budget constraints, take a look at your other constraints as well. These will include things like finalising vendors and suppliers, restaurant staff hiring and training, restaurant technology etc. Consider everything wisely and see what extent of support the franchisor is willing to offer before you purchase the restaurant franchise.
5. Create A Business Plan For Yourself
While it is true that you will have to follow the franchisor’s business plan, creating a plan for yourself will enable you to understand your position and the franchise better. You will be able to look at the profitability of the franchise outlet in its entirety and at the same time understand what all you can bring to the table, what all you can control and what all you will need the franchisor’s help in. Ultimately this business plan will enable you to make an informed choice.
6. Find Franchisor’s Matching Your Goals And Constraints
Now that you have done your end of the research, the next thing is finding the right franchisor and going through the Franchise Contract. Involve a lawyer in this process for legalities like the royalty fee, payment tenure etc and only go for the franchise which meets all of your criteria.
Now that you clearly know the process of buying a restaurant franchise, next is to understand what all to consider before making the final purchase so that you do not end up making a rookie mistake.
Things To Consider While Opening A Restaurant Franchise
Before you go ahead and pay the Franchise Fee, make sure that you consider certain aspects which are often missed.
1. Who is the Franchisor?
Before investing in Franchise Restaurants, you should check the history of the Franchise, its shareholders, officers, and directors. Do you research- investigate 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 Franchise Restaurants, 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 Franchise Restaurants, 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 fulfil 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 Franchise Restaurants come with their own 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 Franchise Restaurants 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 of 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 would you 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 foodservice 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 Franchise Restaurants.