What You Need To Know Before You Buy A Franchise
Jun 16, 2023
A franchise business may sound effortless and profitable. For starters, franchising an existing restaurant business can sound like a much safer alternative—considering that the franchisor brand is already established, and has a market share in place. However, the process of starting a one is far more elaborate than it seems.
If you’re an aspiring restaurateur looking to acquire a restaurant franchise, read ahead to find out key aspects to consider before you sign the Franchise Agreement.
#1 Restaurant format and local markets
Before reaching out to the franchising brand, learn what restaurant format would profit best at the location you are planning to open. For example, fine dining restaurants would work best in second to first class locality while a quick service restaurant (QSR) is profitable in areas with higher foot traffic like shopping malls or university campuses.
Different franchise brands demand different costs. Your financial plan should cover especially the royalty fee (depending on the terms laid out in the Franchise Agreement) and any additional costs that will apply. Additional costs include your vendors and suppliers, staff hiring and training, restaurant technologies, etc. If the finalized costs exceed your initial budget but the return on investment (ROI) measures well, make sure to have a handy source you can procure funds from.
#3 The Franchisor
Knowing where your Franchisor Brand lies in the food service market is crucial to avoid risks and losses. Look into its profile—its shareholders, officers, and directors, maturity, success rates, and brand recognition in the market. Besides those, make sure to check how many franchises are already operating for more than three years and how many have failed. Better yet, get in touch with the Franchise owners and find out if they are making a profit or have gone broke.
#4 The Franchisor’s competition
The local market’s direct and indirect competition should be thoroughly looked into. Consider your competitor’s brand recall and recognition, and think about how you can make yours different.
#5 The Franchise Agreement
After your research, make sure to scheme through the Franchise Agreement and its content—established policies, franchise fees, and impending royalties. Since the brand’s name will now be at stake, be aware of the basic support your Franchisor will be providing in terms of staffing, operations, marketing, and raw supplies.