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
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
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
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
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.
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
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