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Should You Buy a Franchise Restaurant?

A franchise restaurant is an authorization granted by a company to an individual or group enabling them to carry out specific commercial activities specific to the restaurant.  To own a franchise restaurant means that you have purchased the rights to open and operate a branch of the restaurant.  As part of the deal, you pay royalties to the head of the company.  The head of the company—or franchisor—takes care of all marketing and menu design campaigns.  Does this sound appealing to you?  Owning a franchise can be a lucrative business, especially given the symbiotic relationship between franchisor and franchisee.  Here are a few things to consider if you are thinking of buying a franchise restaurant:

  • Know Which Chain is a Franchise.  Did you know that Starbucks is not a franchise? No?  While many chains with locations all around the globe are franchises, many, such as Starbucks, are still privately managed and operated, so do your research on which of your desired brands are actually available as franchise options. And while most franchises might be global, don’t be afraid to think smaller as well- companies such as Steak ‘n Shake, despite being relatively unknown outside of the Midwest- offer franchise opportunities!
  • Create Goals.  Reflect on why you want to own a franchise restaurant.  It can be profitable to be sure, but make sure the work you are going to put in will give you the payoff you need.  Think to yourself these questions: what is your minimum income?  How many hours are you willing to work?  Is it a good payoff for the franchisor to be your boss?  Read up on this information using materials such as the Franchise Handbook to see if this is right for you.
  • Investigate Your Area.  Before you pick which franchise you would like to purchase, first find out what will profit best in the area of your choosing.  If you are looking into an area that is riddled with boutique ice cream shops, for example, opening a Cold Stone Creamery may not be suitable.  Instead, look to open something that will suit the area, either by performing market analysis or by scrutinizing the area for yourself.  By doing so, you will be able to accurately assess which franchise unit will perform best.
  • Consider Cost.  Just like with any investment, a lot of money goes into purchasing and setting up a successful franchise.  Different franchises will have different requirements, and new prospective owners have a lot of hoops to jump to.  If you are interested in knowing the particular requirements of the franchise you are interested in, investigate www.foodfranchise.com.  For example, if you are interested in opening a Dickey’s Barbecue Pit, the site will tell you that Dickey’s requires a minimum of $99,999 to $500,000 cash to begin.  They will also tell you other information, such as the number of existing units and whether or not the franchise is open to establishing a unit in certain states.  You can review multiple different aspects, including whether or not your establish requires a liquor license.  After your initial purchase, remember that you will continue to pay royalties to your franchisor, and are based on the percentage of your gross income.  You may still have to pay even if you are losing money.  Read into the continuing costs of your intended franchise to be sure that it is the right choice for you.

 

Formulate a Business Plan.  You will need a business plan in order to receive financing for your franchise.  You would formulate a business plan the same way you would do for an original restauran.  The business plan must have all of the details that the franchise will cover, including vital market research and location information.  Examining this information in the preliminary stages will benefit you to ensure you maximize the profit of your investment.  It will also give your investors confidence that this is a good investment for them as well.

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