The Ultimate Guide to Franchise Restaurants

For those who’re new to the restaurant business, ranging from scratch generally is a problem. Shopping for a franchise restaurant may very well be an amazing possibility for you, as you’d be shopping for a market-proven, pre-made idea with model recognition and help from a company workplace. 

For those who’re already working a profitable, worthwhile enterprise and also you wish to develop, franchising your tried-and-true restaurant idea may very well be a good way to develop your model sooner and in a number of markets. As with every enterprise endeavor, there are execs and cons on either side of the fence. Hold studying to be taught:

What’s a franchise restaurant?

Franchise eating places are turnkey restaurant ideas you could buy from an current model. In trade for an preliminary funding and ongoing royalty funds, shopping for a franchise provides you entry to the established enterprise’s proprietary processes, software program and {hardware}—like a restaurant POS, coaching, recipes, provider relationships, gear, actual property experience, advertising and extra.

Whether or not you’re in search of a big or small restaurant on the market, there are many franchises to select from. Many in style fast service chain eating places, like McDonald’s, Subway and Tim Hortons function as franchises. Full service eating places, like Pizza Hut and Denny’s, are additionally obtainable for franchise.

Franchisor vs franchisee

A franchisor creates the model and establishes the programs to run the enterprise. They promote the precise to make use of its model and proprietary information to an entrepreneur who will open one other department and function below that model title in trade for royalty charges. 

A franchisee buys the precise to make use of the franchisor’s model, trademark and proprietary information. Franchisees pay ongoing royalty charges to function utilizing the model title and enterprise system of the franchisor. 

Execs and cons of investing in a franchise restaurant

Franchising can supply entrepreneurs a longtime model and enterprise mannequin to assist them get their new restaurant off the bottom. However as with all enterprise, there are execs, cons and dangers to think about earlier than taking the plunge. 

Execs of investing in a franchise restaurant

There are a lot of nice causes to buy a franchise restaurant.

• Shopping for a franchise is less complicated than ranging from scratch. You don’t need to give you the idea, recipes or branding, so you’ll be able to simply give attention to operations.
• Franchises include assets. As a franchisee you’ll have entry to software program, programs, recipes, suppliers, advertising and rather more from company.
• Franchise eating places include a built-in buyer base due to model recognition. Clients are already aware of the idea and dishes that the majority chains serve. For instance, the meals at a Subway close to you’ll be the identical as, or similar to, the meals at a Subway in a metropolis throughout the nation or throughout the globe. 
• As a franchise proprietor, you’ll have entry to a help community. You’ll have assist from the company workplace and different franchisees who you’ll be able to community with.
• Franchisees have entry to advertising assets. Franchisors present promoting and promotional assist in trade for royalties and/or advertising charges.
• High quality management is constructed into the franchise mannequin. You’ll have entry to processes, recipes, suppliers and gear that ensures constant high quality from franchise to franchise.
• With franchise eating places, you’re shopping for a turnkey idea, so that you’ll doubtless break even sooner than for those who had opened up your individual restaurant.
• Location is essential to a restaurant’s success. Many franchisors present connections to real estate expertise. 
• Whereas many franchises require you to have a certain quantity of unborrowed property obtainable to turn into a franchisee, it’s simpler to safe loans for a confirmed enterprise idea while you do want money, than for a brand new restaurant.
• Because of collective shopping for energy from different franchisees, you’ll have the ability to entry cheaper provides than for those who had opened an independently-run restaurant.

Cons of investing in a franchise restaurant

Listed below are a few of the downsides of proudly owning a franchise try to be conscious of earlier than investing in a single.

• Most franchises require you to take a position so much up entrance. Whereas shopping for a franchise can price wherever from $50,000 to $6 million, most startup investments for franchise eating places begin within the $200,000 to $300,000 vary.
• You may not be allowed to borrow funds to cowl these startup prices. Some franchisors require unborrowed funds and a minimal web price for approval.
• After paying startup prices, you’ll need to pay royalties to legally license the restaurant’s model and proprietary programs, which suggests you’ll be gifting away a portion of your earnings eternally.
• Shopping for a franchise means giving up inventive management. You must serve the meals the company workplace tells you to serve and run your restaurant based on their guidelines.
• Despite the fact that you technically personal your individual enterprise, you’ll all the time be held accountable to the franchisor and might want to make sure you meet their requirements, or else face penalties. 

Spend money on franchise eating places
Execs	Cons
Prepared-made enterprise components	Substantial start-up prices
Market-tested services and products	Ongoing charges
Established model recognition	Lack of territory alternative
Key selections already made	Restricted management
Record of accredited suppliers	Lack of resolution making energy
Coaching and monetary planning supplied	Franchise status can have an effect on you

How a lot does it price to put money into a franchise restaurant?

Shopping for a franchise isn’t low cost, but it surely provides you the framework for a turnkey restaurant that has had confirmed success available in the market. Right here’s what you must find out about how one can purchase a restaurant from a franchisor, together with a breakdown of the startup and ongoing prices related to investing in a franchise restaurant.

Professional tip: Try our starting a food business checklist for assets for opening your restaurant.

Franchise restaurant startup prices

There’s so much that goes into the funding you’ll need to make up entrance to turn into a franchisee of your favourite restaurant. You’ll have to pay a startup funding that features a franchise payment. 

Whereas some startup funding quotes embrace actual property prices, many don’t. Most franchises will even ask you to have a minimal web price and liquid property obtainable to make sure you can cowl sudden bills.

Estimated preliminary funding

What it prices: Complete franchise restaurant startup costs vary wherever from $50,000 to $6,000,000. Whereas you could find franchises on the decrease finish of the spectrum, most chains begin within the $200,000 to $300,000 vary.

These are the startup prices from well-known franchise eating places:

• Denny’s: $1,400,000 to $2,300,000
• Dunkin’: $526,900 to $1,809,500
• McDonald’s: $1,000,000 to $2,200,00
• Pizza Hut: $300,000 to $2,100,000
• Subway: $100,000 to $340,000
• Taco Bell: $530,000 to $3,000,000
• Tim Hortons: $60,000 to $665,000

What it will get you: Complete startup prices offer you entry to make use of the model, administration programs, coaching and help in advertising, gear, stock, marketing, staffing, help to your restaurant’s grand opening and extra—mainly every little thing you must get the enterprise off the bottom.

Franchise payment

What it prices: A franchise payment is often included within the whole funding startup quote the franchisor supplies. 

Right here’s a take a look at the franchise payment that in style eating places cost:

• Denny’s: $30,000
• Dunkin’: $40,000 to $90,000
• McDonald’s: $45,000
• Pizza Hut: $25,000
• Subway: $10,000 to fifteen,000
• Taco Bell: $25,000 to $50,000
• Tim Hortons: $25,000 to $50,000

What it will get you: The franchise fee is a one-time payment for entry to the restaurant’s title, coaching, web site, software program entry and startup stock. 

Actual property prices

What it prices: Actual property prices fluctuate tremendously due to a number of elements. First, area in city areas tends to be costlier than area in rural areas. Second, it would rely upon whether or not you’re constructing a brand new restaurant or shopping for a pre-existing location from one other franchisee. Third, actual property costs will rely upon whether or not you’re trying to put money into a big or small restaurant on the market.

What it will get you: Actual property prices can embrace something from paying the lease for a turnkey commercial space to purchasing a industrial area and renovating it. 

Financing your franchise restaurant

Franchises have hefty startup prices. Lots of them require you to have a sure web price and a minimal in liquid property to make sure you can maintain the enterprise till earnings kick in. Many franchisors require that these funds be unborrowed.

Listed below are some web price and liquid asset necessities from in style franchisors.

Liquid property: Money you could rapidly entry.

Web price: The whole worth of your private wealth, together with money and property, minus any money owed.

• Denny’s: $1,000,000
• Dunkin’: $500,000
• Pizza Hut: $700,000
• Taco Bell: $1,500,000
• Tim Hortons: $1,500,000
• Subway: $80,000 to $310,000

Ongoing charges for franchise eating places

After you pay startup prices, you’ll owe ongoing charges to the franchisor to have the ability to maintain utilizing their license and assets. All franchisors cost royalties, and a few additionally cost a advertising payment on high of that.

Royalties 

What it prices: Franchise eating places usually acquire between 4% and eight% of your gross income every month. 

Right here’s a take a look at what in style chains ask for:

What it will get you: These royalties let you maintain licensing the restaurant’s model and keep entry to company assets.

Advertising and marketing payment

What it prices: Some franchisors additionally acquire a separate advertising payment of between 2% and 5%. 

That is what some franchises cost: 

What it will get you: This payment is an funding into ongoing advertising help within the type of something from promotional supplies and TV commercials to mailed coupons and social media advertisements.

Now let’s take a look at restaurant franchising from the opposite aspect of the coin—changing into a franchisor. 

The professionals and cons of franchising your restaurant

So that you’re already working a profitable, worthwhile enterprise and also you’re curious about increasing. Finally, you will have three completely different choices for increasing what you are promoting:

• Self-funded development (funding development plans your self)
• Investor-supported development (increasing with outdoors funding)
• Franchising (licensing your model and operations in trade for a payment)

Let’s check out a few of the execs and cons of franchising your restaurant. 

Execs of franchising your restaurant

There are a lot of nice causes to franchise your restaurant. Listed below are just some:

• Franchising means that you can develop what you are promoting and enhance model recognition in new markets.
• Franchising lets you develop your model with decrease capital funding, as franchisees present the mandatory capital to open new areas.
• Franchise charges, royalties, and different revenue-sharing fashions present a gentle stream of earnings.
• Franchisees have a robust understanding of their native market, which will help you higher adapt to regional tastes and preferences.
• Franchisees have pores and skin within the recreation—and a vested curiosity in your model’s success— lowering your publicity to failure.

Cons of franchising your restaurant

Listed below are a few of the downsides of franchising your restaurant.

• Franchising requires relinquishing a level of management over particular person restaurant operations, which may result in inconsistencies in high quality and buyer expertise.
• Choosing the proper franchisees is essential, as poorly performing franchisees can hurt your model and status.
• Prices of growing your franchise programs, authorized agreements and help infrastructure will be labor-intensive and costly. 
• Franchising includes advanced authorized agreements and compliance with franchise legal guidelines and rules.
• Offering constant coaching and help to franchisees will be demanding.

Franchise your restaurant
Execs	Cons
Much less capital funding required for development	Shared management
Potential for sooner growth	Danger of brand name dilution or harm
Regular money stream from royalties	Excessive upfront prices and time funding
Companions with a vested curiosity in your model’s success	Coaching and steady help will be demanding
Elevated buying energy	Compliance prices and dangers

franchise a restaurant

1. Resolve if what you are promoting is prepared and possible for franchising

The very first step in your franchising journey must be to pause and consider your present enterprise. Franchising isn’t a possible development mannequin for each restaurant—it’s necessary to place within the effort and time required to determine in case your restaurant idea will be scaled.

Ask your self:

• Do I’ve a well-defined idea? Model identification?
• Wouldn’t it work in a number of areas?
• Can or not it’s simply replicated?
• Can I standardize my processes simply?
• Do I’ve a robust observe document of profitability?

It’s necessary to do not forget that potential franchise patrons count on a franchise system that works and is confirmed. It’s worthwhile to have your funds so as and have a confirmed observe document of success earlier than you think about franchising your restaurant. 

2. Put together your franchise disclosure doc 

Now it’s time to do the authorized work. Within the US, this contains drafting your franchise disclosure doc (FDD). An FDD is supplied to potential franchisees within the pre-sale disclosure course of. It clearly specifies how the enterprise relationship between the franchisee and franchisor will work.

There are 23 gadgets you have to disclose in an FDD, together with background details about what you are promoting and any mother or father firms, estimated start-up prices, details about your govt staff, litigation historical past and extra. It should additionally include your audited monetary statements.

You’ll positively wish to rent a lawyer to evaluation your FDD and show you how to problem it, in addition to arrange and register what you are promoting. 

In Canada, franchising is regulated on the provincial stage in most provinces. The knowledge required is similar to the American FDD.

3. Arrange your new franchise entity

Even when your current restaurant is a company entity, you’ll in all probability have to arrange a brand new franchise firm. 

It will allow you to maintain your future franchises separate out of your present restaurant enterprise, which helps to guard the unique (mother or father) within the occasion of authorized or monetary hassle. You should definitely seek the advice of a authorized skilled for all of the superb print.

4. Register your franchise

Once you franchise your restaurant, you give different entrepreneurs the precise to make use of your model’s brand and trademark. To guard yours and your franchisees’ pursuits, it’s necessary to guard your mental property. 

This contains registering your brand and buying a trademark. Within the US, you must register what you are promoting with the US Patent and Trademark Office. In Canada, the most typical technique to submit a trademark utility is to file immediately with the Canadian Intellectual Property Office.

5. Develop your franchise operations guide

Now it’s time to develop complete operations manuals that doc all facets of working your restaurant. These manuals shall be used to coach franchisees and guarantee consistency throughout all areas, so be sure they’re detailed and full. 

At a minimal, your franchise restaurant guide will embrace:

• Confidentiality and authorized discover
• Model identification, mission and imaginative and prescient
• Efficiency targets and milestones
• Recipes and preparation directions
• Employees coaching and help supplies
• Insurance policies and procedures
• Working programs and necessities

Everytime you make modifications, guarantee that each franchisee receives the newest model of the doc.

6. Recruit and vet your franchisees

When you’re able to go, it’s time to begin advertising your franchise alternative to potential franchisees.

It’s necessary to do not forget that your franchisees should not your workers, they’re what you are promoting companions. And shared governance comes with dangers—to your status and your model. 

Take into account growing a screening course of to judge and choose the precise candidates. Amongst different issues, search for candidates with robust managerial expertise, ideally within the restaurant business. 

7. Present help to your franchisee community

To assist get your franchisees up and working, try to be ready to help with issues like hiring and training staff, advertising and coaching managers on the programs and know-how you employ, together with your restaurant POS.

To make life simpler, it’s a good suggestion to centralize and join your tech stack, beginning with an integrated POS platform. 

In an built-in system, all the software program and instruments you’re utilizing to run the enterprise talk with one another. In fragmented programs, software program integrations and apps work independently of one another, which may create plenty of additional and pointless work.

“The Lightspeed staff together with the customer support specialist and builders have helped us construct our enterprise to what it’s now with ease.” — Aubert Prévost, President of Koeppel Corporations, 5 Guys Canada

Learn why Five Guys Canada switched to Lightspeed.

The underside line

Franchise eating places generally is a nice enterprise alternative for each franchisors and franchisees. Lightspeed’s all-in-one cloud-based level of sale system could make working a franchise even simpler. Talk to us to be taught extra.

FAQs

What’s the hottest franchise restaurant?

McDonald’s is by far the most well-liked franchise restaurant, producing over $118 billion US in gross sales worldwide in 2023. Its international presence, standardized menu and give attention to consistency have made it the world’s most recognizable and profitable franchise restaurant.

Which meals franchise is most worthwhile?

In the USA, Chick-fil-A could also be much more worthwhile than McDonald’s on a per-unit foundation; its common annual gross sales per unit considerably surpass these of different fast-food chains. It requires a decrease preliminary funding from franchisees in comparison with different fast-food chains, but it surely maintains extra management over operations. 

What meals eating places take advantage of cash?

Franchise eating places that generate essentially the most income are these with robust model recognition and a world presence. With its huge international community of eating places, McDonald’s is often on the high of the record when it comes to gross sales, adopted by manufacturers like Subway, KFC, Domino’s, Burger King and Taco Bell. 

What’s the greatest franchise proper now?

With over 39,000 areas throughout greater than 100 international locations, McDonald’s stays the most important franchise on the earth when it comes to international presence and model worth. Subway is available in second with over 37,000 areas internationally, nonetheless this quantity has been falling year-on-year since 2015.

What’s the most cost-effective meals franchise to begin?

The funding required to begin a franchise varies broadly based mostly on many elements, together with franchise charges, web price and liquid asset necessities and hire, so the TL;DR is that it relies upon. For those who’re trying to put money into a nationwide quick meals franchise, Subway, Quizno’s, Domino’s and Chester’s chicken are all thought-about extra reasonably priced choices in comparison with a behemouth like McDonald’s. Chick-fil-A requires a significantly decrease start-up funding, but there’s a catch. Take into account reaching out to present franchisees to study their experiences and the true price of beginning and working the franchise.