If you have hit that sweet spot in your restaurant where your tables are filled every day and you have made a good name for yourself, you might be starting to experience the growing itch. Are you itching to expand your restaurant but not sure what the right way is?
The most common ways to grow your restaurant is to open another location or to franchise. According to a recent PricewaterhouseCoopers study, the franchise industry is a big driver in the economy and restaurants make up a big part of the industry. While these seems like a good sign not all restaurants are a good fit for the franchise model.
Knowing which way is better for your particular situation can be tricky. Here are some things to consider when deciding if your restaurant franchisable:
What Are the Obstacles to Opening a New Location?
When you are able to expand by opening your own second or third location, you get to keep control of every aspect of the business and of course to reap all the rewards, but it is no easy feat, requiring a lot more money, people and time to devote to this new location.
Franchising your business is a good workaround to this problem. When you have people buy into your model, they become responsible for the money, people and time needed to get the franchise up and running. As the franchisor, your major investment will be in the recruitment of franchisees and in the developing of franchise documentation and setting up a support structure for your franchisees.
What Makes a Restaurant Franchisable?
If lack of money, employees, or time is making you lean towards franchising, then consider what qualities will ensure that your franchise program will be successful:
- Is your restaurant unique? In any city, you will see tons of fast food restaurants and pizza parlors on almost every street corner so it is important to look at what your restaurant offers customers and ask yourself if it is unique enough to make your brand stand out among the crowd.
- Do you have an easy to follow restaurant model? While being unique is good, you don’t want to be so unique that your business model cannot be easily duplicated. All your restaurant systems and processes need to be able to be used by others with the same amount of success that you had. If all recipes need you as the special ingredient, it is not practical to think you can prepare all the food for all your franchises.
- Can you expect a solid return on your investment? In order for the franchise program to be successfully, your franchisees will need to be able to earn enough revenue to pay your royalties fees while still paying their bills and increasing their own revenue.
Research. Research. Research.
You should also do some market research to ensure there is enough customer demand for competing locations. It is also good to research the probability of you being successful in other cities and even other countries. Before you make a big investment like this you should see how far you can realistically expand.
Here are some important questions you should have answered before embarking on this major journey:
- What fees do you plan on charging and how much? What percentage should the royalty fee be?
- What size territory will you offer each franchisee?
- Which locations will you offer units in?
- What experience and net worth will you require of your franchisees?
- Will you require your franchisees to buy certain items from you?
You should also make sure you have the money to get your franchise business off the ground. Unfortunately, some franchisors fail because they underestimate all the legal and regulatory fees involved. Besides having a lawyer on staff, you should have an accountant experienced in the franchise business as well. Franchised business are audited once per year. Marketing campaigns also cost money and you will have to hire recruiters to help you attract potential franchisees.
Remember that becoming a franchisor does not mean you will become rich overnight. You have to make an investment to see a good return. While you are figuring what kind of capital you will need make sure to get a good sense of all the legal and regulatory fees that are involved. Did you know that franchised businesses are required to be audited once a year? The more prepared you are, the better shot you have at surviving the long haul.
Creating a Strong Support Structure for Your Franchisees.
A solid support structure for your franchisees is essential for success. You might be thinking you will be saving money if you only hire a lawyer to develop your franchise program, but you should also get help creating your business plan, training program and franchisee recruitment strategy. Also don’t discount the importance of a solid marketing campaign strategy.
What Are Signs that You Are Not Meant to be a Franchisor?
If you are a chef who owns his or her own restaurant then make sure you really think hard about whether you would really enjoy having to take a more hands-off approach. If you love being in the heat of the kitchen handing the day to day creation of meals and other tasks of running a restaurant then it might be hard to give up the reigns. But that is what you do as a franchisor. You set up a structure for your franchisee to follow and then you let them run with it.
If you think that will make you miserable, then becoming a franchisor is not right for you. However, if you think becoming a franchisor is right for you, consider hiring a franchise development firm to help you with all areas of franchise development. If you decide to go that route, make sure you do a lot of research and interview a few franchise development companies before you pick one. Want to know how a franchise development firm can help your dream of becoming a franchisor come true, contact MBB Management today.
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