Steps to Purchasing a Restaurant Franchise Business

For prospective restaurant owners, purchasing a restaurant franchise vs. opening a new restaurant is a very viable option. However, there are many things to consider, so it is important to thoroughly do your research and weigh the pros and cons before signing on the dotted line. Here is a step-by-step guide to help you along in the decision making process:

Consider franchise types. Think about what franchise types would fit best with your skills and qualifications. For example, one option may be a fast food franchise, such as McDonalds, Subway, or KFC. For those who have the capital for a larger initial investment, casual dining options may include a Chili’s Bar & Grill, or Applebee’s franchise.

Consider your local market. After you have narrowed down some possible franchise types, consider your local market. During this stage, you want to give careful consideration to the demand for particular restaurant types in your area. For example, if there are multiple Chinese food restaurants in your area, chances are the locals would welcome another type of restaurant. Also think about the competition. Any area that is already saturated with other restaurants, regardless of restaurant type, will likely take away from your profits.

Examine your qualifications. At this stage, seriously analyze your skills and qualifications and think about what interests you most about owning a franchise business. Although most franchisors offer training, you will still need to wear many hats to get the operation up and running. There is also a large time commitment involved with running a franchise: in most instances you are the first to arrive in the morning, and the last to go home. Evaluate your skills, and think about how becoming a restaurateur would fit in with your current lifestyle.

Examine your budget. In most cases, a substantial investment is required to open a restaurant franchise. Luckily, many franchisors offer in-house financing. In addition, traditional lending sources are accustomed to providing loans for franchise businesses, and understand the equipment and real estate needs of a new franchisee. If you do need to seek financing outside of your franchisor, make sure you do your research and shop around for a good interest rate.

Talk to current franchisees. Another way to gain insightful industry knowledge is to talk with a current franchisee. Inquire about typical day-to-day operations, labor obstacles they have encountered, and whether or not profits have been what they expected.

Develop a business plan. Preparing an effective business plan is a critical component of success for your new venture. This document will help you fill in the gaps with specific information unique to your local market area. Thoroughly analyze data for your locale, such as population, local economy, and calculate the profits needed to compete in your market. Although most franchisors offer training, and may assist with equipment and marketing assistance, it is still important to plan out your business strategy.

Sign franchise contract. Once you have determined your ideal franchise type and secured financing, you will need to review and sign your franchise agreement. The contract is generally a very lengthy document. It is advisable to consult with an attorney on this process so you thoroughly understand what your agreement entails.

Training. Once you have signed on the dotted line and made your investment, franchise training is typically the next step. Generally, training programs are designed to offer new franchisees everything they need to know about running their businesses. This is the perfect opportunity to learn the tricks of the trade, and ask tenured franchisees questions about their industry experiences.

Labor. Hire the best workers you can find. Remember that your workers give your customers a lasting impression of your establishment! In addition, think about whether your business model better allows for employees, or 1099 workers. Hiring employees will incur additional wage responsibilities for you, such as applicable state and federal tax withholding, Social Security, income tax withholding, as well as unemployment insurance. If you plan to hire youth or immigrant workers, make sure you understand how immigrant and child labor laws affect your business. For more industry information on these topics, visit Employing Minors in the Restaurant Industry, or Employing Immigrant Workers.

Workplace Safety. Employers within the restaurant franchise business have numerous safety requirements to comply with on a local, state, and federal level. This includes complying with Occupational Safety and Health Administration (OSHA) compliance requirements, food safety laws as mandated by the Food and Drug Administration (FDA), as well as regulations set forth by your local health department. Make sure you enforce food and safety training and education for your workers, so they understand requirements and expectations.

Labor Law Compliance. By law, all businesses are required to comply with state and federal labor laws. You will need to obtain labor law posters, and post them in a prominent workplace location. Individual posters and compliance plans are available from the LaborLawCenter™. To research requirements for your location, visit Complete Labor Law Posters, or visit Compliance Management Services.

Overview:

There are many benefits to opening a new restaurant franchise. For example, with a franchise you have ready-made marketing and a brand name that is already known. In addition, financing comes relatively easy for new franchisees: traditional lenders generally understand franchisee requirements, and franchisors usually offer in-house financing.

However, there are large expenses, and challenges that should be considered. For instance, initial investments for new franchises tend to be very high. You will also need to tackle other challenges, such as labor issues, as well as ongoing compliance with local, state, and federal food and workplace safety requirements.

As a general rule, take the time to carefully research all angles before you make a decision. If you have questions, talk to an expert, or a franchisee who has industry experience. Once you get all your ducks in a row, owning and operating a franchise restaurant can prove to be a very profitable venture; one that nicely suits your lifestyle.

This article is not designed to infer legal counsel, but is rather an informative step-by-step approach to purchasing a restaurant franchise. For expertise on individual circumstances, seek the appropriate legal counsel.

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