Buying a Restaurant Franchise
Do you have what it takes to be a successful restaurateur? Our franchise expert offers some words of wisdom.
When most people think of a franchise business, they first think of burgers. Or pizza. Or coffee (and donuts). Or tacos. There are, of course, many different markets in which franchises thrive, but the success and growth of numerous fast-food behemoths have made it so that, if you were to play a game of word association and offered up "franchise," most people would probably instantly respond: "McDonald's."
But your first thought shouldn't be your last one. When deciding whether to purchase a restaurant franchise, you must focus on the characteristics of the business from a franchisee's perspective. Only that can determine whether this industry is the right one for you.
Popularity is one of the wonderful advantages of having a food business, but there are also some challenges you need to be aware of before entering this industry. Here's a breakdown of what you'll need to keep in mind.
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Built-in demand. Consumers want consistency in their food, so they have been trained to look for franchises. This can be a big advantage for a startup — but make sure that the food a franchise sells has staying power. Fringe products can be precarious, and fads fade.
Familiar financing. Traditional lending sources are well-schooled in the real estate and equipment needs of a fast-food operation, which may ease the challenge of getting the funding you'll need. Better still, lenders like the often-high revenue that a typical food franchise offers.
Clear track records. Many food franchises have multiple units and have been operating for a while, which means you can have a clear sense of what is and isn't working before you decide whether to get involved.
Prestige. Many people think owning a food franchise is glamorous. This may be an added bonus for a prospective franchisee.
High initial investment. Most food franchises require significant funding to start. Prep stations, sinks, stoves, ovens, grease disposal systems, venting requirements, customer seating, and bathroom areas are just the start.
Endless compliance. The government goes to great lengths to ensure that food is safe to eat. Complying with its regulations, both initially and continuously, is time-consuming and costly. Franchisors should help a new franchisee deal with zoning, permits, and all other site-related issues. Ask existing franchisees about this support — and if the franchisor doesn't offer it, look elsewhere.
Labor challenges. Most food businesses rely on a significant number of low-paid employees. As a result, turnover can be very high. In fact, recruiting and retaining is typically a food franchisee's top challenge.
Relatively low margins. The food franchisee must overcome the cost of labor and goods in an environment that, especially for fast-food outlets, is very price-sensitive. The net margins of most food businesses are not nearly as high as other franchises (particularly service-related ones)—and that's before you deal with spoilage, theft, and other issues uncommon to other businesses.
Quality of life. You're often the first to arrive and the last to go home. The employee challenges can be so frustrating that they are the main reason owners cite for wanting to leave the industry. Then there's the issue of what a person smells like after spending long hours each day in a food franchise. It's not exactly a classy perfume.
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Now that you have a realistic sense of what this business is like, let's talk about whether you're a fit for it.
The food business can be very rewarding to a person who has a special blend of skills and aptitude, and these operators are among the most respected in all of franchising because of their success. But it is essential to make sure you know what those skills are — and that you have them.
How can you know? Go to an existing unit and shadow the present owner until you've gained enough experience to have a clear sense of what it takes. (Some of the most successful food franchises require you to do so.) This tour won't be quick. It'll likely take at least a few weeks to know for sure — a significant time commitment. But it is infinitely better for you to find out early (and before you risk your life savings) if this business is not for you.
One more consideration: Some food franchises use a simplified business model that avoids several of the disadvantages listed above. For example, they may not require your franchise outlet to cook, instead using a commissary system that sends food that is either ready-to-serve or just needs some basic assembly. These businesses can avoid many of the food industry's trickiest issues — but it won't solve those labor challenges.
Carefully think through what is required of a food franchisee: the investment, the daily and weekly tasks, the hours. Do you have the skills required to succeed? Will that work be worth the returns you can reasonably expect, based on your research? Only by making these many considerations can you know whether becoming a restaurateur is right for you.
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