Franchising a restaurant is a difficult but highly profitable step. When done correctly, your restaurant business can leap into a new and incredibly positive stage.
However, there are still many things you have to do before starting a franchise – let alone a successful one.
This article will discuss restaurant franchising, why you might want to do it and the specific steps you need to take to franchise your restaurant successfully.
Why Franchising Your Restaurant is a Good Idea
First of all, let’s get one thing straight: not everyone should franchise their restaurant.
Beginners in the industry and new brands specifically are highly advised to take the time to develop their operational concept before leaping into franchising.
There are several things that you need to get down pat before you franchise your restaurant.
Among those, your operating prototype is the most important. Your backend processes, budget, margins, etc. – all of these essential details need to be perfected before you even begin thinking about selling your business model to other people.
Your brand and menu are the same: they need to be tested, replicable and profitable.
However, if you feel like you have all those things lined up for your establishment, there are many benefits to franchising your restaurant. Here are the most prevalent advantages you can expect if you execute this business model.
- Increased capacity. As demand for quality-consistent food increases, franchises will have the capacity to cater to demand in ways that individual establishments simply can’t.
- Better brand recognition. In this age of content-rich, social media-powered consumerism, having more physical locations will increase brand recognition.
- Minimized expansion capital. While you need to invest a significant amount of time and resources at first, most of the costs will be shouldered by the franchisee.
- Better employee management. Franchising means you’re stepping away from managing multiple branches and people by yourself and instead focusing on the bigger picture.
Step-by-Step Guide to Franchising Your Restaurant
Now that you know why you should consider franchising your restaurant, it’s time to familiarize yourself with the actual steps.
1. Evaluate your business
The process of franchising your restaurant must be built on solid evidence. By this, we mean that you should’ve conducted a thorough evaluation and concluded that your business would make a bigger profit from a franchising model.
Some of the most critical factors and systems you need to evaluate can be summarized in three categories:
- Value. Here, think about what your restaurant offers and whether you can continue to deliver it at scale. What is its unique value proposition? And does your area have the kind of demand that could sustain multiple restaurants like yours?
- Operation. What kind of organizational structure do you use? How do you hire or train team members? Are your methods scalable? Before you franchise your restaurant, you need to ensure that you can deliver on your operational promises.
- Financials. Can you take the risk financially? Do you even have the capital to begin? Go through everything with your accountant and make sure you have the capital to execute a franchising model as well as a plan B if things don’t work out.
These are only some of the factors that you need to consider. It’s far from an exhaustive list and will only serve to give you an idea of what to expect.
2. Prepare a brand profile
In this stage, it’s time to polish your company branding.
This step is crucial because the success of your franchise depends on the strength of your brand.
If you don’t have a good brand, no matter how good your operating system is, it won’t yield results as well as it should because people don’t have a good idea of who you are.
However, this is not just about a fancy website and logo.
Think of the brand profile as a document with a compelling business proposal for franchisees. Include details about your restaurant’s vision for the future, services that you deliver, infrastructure, organization and more.
Present as much actual data as you can, too. Being honest is one crucial tip that gets overlooked when crafting your brand profile.
It wouldn’t hurt to frame your story to your favor, of course, and in fact, that’s exactly what you should do – but you should also be honest about the risks and potential pitfalls of your business to serious investors. This helps create the kind of trust that’s fundamental to making franchising relationships work.
3. Get your accounts in order
If you want to make franchising a success, you have to get your financial accounts in tip-top shape.
When talking to potential franchisees, they’ll need to know what’s the return they can expect from an investment like this. They need to know the associated upfront and ongoing costs in addition to the revenue potential.
And they will likely perform thorough due diligence before investing their cash.
Not only that, getting your accounts in order will also help you set a price when franchising since you will have hard data to base your decisions on.
So before moving forward, make sure your balance sheet, cash flow and profit & loss accounts are in good shape.
4. Establish your company as a franchise
This step will see you go through all legalities to establish your restaurant franchise.
You’ve probably already registered as an LLC when opening your business. However, when you establish your restaurant franchise, you’re basically setting up a new company.
This is mainly because a franchise doesn’t operate the same as a restaurant.
Your franchise company will have different systems, policies and financial statements, so it’s only logical that you create a distinct entity with operations limited to the franchise business itself – separate from your actual restaurant.
5. Register trademarks for your assets
One aspect of business that many owners forget to take care of is intellectual property, specifically their trademarks.
When you create a restaurant franchise, you need to ensure that you own the rights to everything – including the less-tangible part of your business.
This can include your logos, mottos and other identifiers. You may think this isn’t that big of a deal, but you can incur a significant loss if your brand is hijacked or your trademark is stolen.
To avoid this, make sure you identify your trademarks and undergo the proper steps to register them in the U.S. Patent and Trademark Office.
6. Create documents for standard operations
Based on the development stage of your restaurant, you should already have a good library of Standard Operating Procedures (SOPs) to re-use in your franchise operations.
Still, you may need to update these for easy usage by anyone as well as add new franchise-specific procedures. Some of these critical documents include the following:
- Franchise manual. This document will serve as a briefer for your franchisees and contains all the necessary information on how they can emulate and maintain your restaurant’s business model while still being an independent business owner-operator.
- UFDD. The Uniform Franchise Disclosure Document is a 23-point document required by the government that contains critical information about your business that potential clients will assess.
- Marketing materials. This document will discuss tried strategies that you’ve used to make your original restaurant profitable and which the new franchisee can now implement for their own business.
Once again, these are comprehensive documents that require not just time and dedication – but also legal attention. When creating these documents, make sure you’re in steady contact with business and legal advisers and have them check the final output.
7. Build a franchise offer
With everything done, it’s now time to create a stellar, winning pitch to wow your potential franchisees. You’re putting everything together in a single offer at this stage, so you need to make sure you do it right.
A franchise offering contains three key elements, which are the following:
- Price. Essentially, how much your franchisees need to pay to access your business model and support.
- Model. This is the winning formula you’re selling, everything from the measurements of your condiments to your brand philosophy. Your model is likely what makes or breaks the deal.
- Support. The level of support a franchisor is willing to provide is inherently subjective. However, your franchisees must know what they can expect from you, whether training, equipment, or troubleshooting.
Franchising Your Restaurant: Conclusion
Franchising your restaurant is indeed a lofty goal, so you need to do everything correctly if you don’t want to fall and crash into the ground. Hopefully, this step-by-step guide will help increase your chances of success and lay the foundation for franchising your business.
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