If you’re thinking about getting into the restaurant business, buying a franchise is a popular option. Instead of starting from scratch, you benefit by opening a restaurant with an established brand and procedures.
A franchise is a major financial commitment, so you should consider several important factors before buying one.
1. Your Budget and Restaurant Experience
Running a successful franchise requires money and management skills. You need to spend money to make money, especially in the restaurant business. You also need to know how to operate a restaurant, and the only way to truly understand that is through years of experience. For that reason, most franchises have net worth and experience requirements for potential franchisees. Even low-cost franchises typically require at least a six-figure net worth.
2. Your Area
You’re more likely to be successful with your franchise if you find a niche that hasn’t been filled yet. If you live in a small town without many healthy fast food options, a Subway could tap into a community need and make a solid profit. Research your area to make sure that you don’t end up with the fifth sushi restaurant or pizza place in town.
3. Net Operating Income
Look at your potential franchise’s average expenses, including unit volume, overhead, and operating costs. This information is available on the Franchise Disclosure Document that franchisors must provide you with at least two weeks before you sign a contract with them or pay them. Using this information, calculate how much money you need to make per month to turn a profit.
4. Success Rate
That Franchise Disclosure Document also includes information on open and closed franchises, along with franchisee and former franchisee contact information. While past performance doesn’t always indicate future performance, it’s best to find a franchise with a good track record. Compare the number of closed franchises with the number of open franchises to determine how successful the franchise has been to date.
Check out how much support the franchise offers in terms of training, launching your restaurant, and marketing it, along with any ongoing support the franchise provides. Considering you pay a franchise fee and ongoing royalties to have a franchise, you should get considerable support in return.
6. Brand Strategy
Branding is crucial for any business, but especially for franchises that rely on the strength of their brand. Evaluate how consumers perceive the restaurant’s brand. Do they have a positive opinion of it? Is the company forward-thinking or stuck in the past? You want to join a brand that people like and that is consistently moving forward. As an example, think about Blockbuster. At one point, it was a great choice for a franchise. However, the company didn’t advance with the times and suffered the consequences.