The Basics: Franchising a Restaurant
October 11, 2018
What is (and isn’t) a Franchise
Franchising is not restricted to restaurants, although that’s probably the most common use of the word, and the subject of our blog post today. Franchising is a contractual relationship that allows restaurant chains to grow their business and distribute goods through a licensing relationship. The franchisor specifies products and services that can be offered through the franchise and will typically provide an operating system and brand support in exchange for a fee. By default, this makes franchises chain restaurants, meaning that there are more than one restaurant operating under the same brand or corporate guidance. But, don’t be confused; not all chain restaurants offer franchise opportunities.
How are these agreements structured?
Single-Unit Franchises- this agreement happens between a single operator and a brand. The operator invests in the right to use the brand for a single restaurant.
Multi-unit or developers- these agreements obligate a franchisee to open a pre-determined number of restaurant locations in a set amount of time, usually in a defined market. Development fees are paid up front.
Master Franchising- This relationship gives the master franchiser the ability to sell franchises in addition to their own multi-unit franchise agreement.
Area Representatives- This agreement allows a representative to sell franchise restaurants on the brand’s behalf without opening their own franchised restaurant. This is more of a sales and support agreement than a licensing agreement.
Are you thinking about owning a franchise?
One of the most compelling arguments for owning a franchise is the built-in support network of operators. Some companies offer to counsel new franchisees in topics like real estate development, construction, design, operations, training, and marketing.
Franchisors are required by the FTC to provide a disclosure document which outlines fees, royalties, and advertising costs that the franchisee will be responsible for paying. There may also be restrictions based on your personal worth and available cash.
Some companies help their franchisees by fronting capital for start-up costs including land, construction, and equipment. Other companies require that you pay a smaller up-front fee but leave you to manage your own starting expenses. Either way, signing up with an existing franchise gives you all the power of their brand recognition.
Franchises can be an amazing opportunity for entrepreneurs. These companies do a great job empowering their owners through their established brand, business operations, and support systems to ensure your success. It’s almost like receiving a business in a box. Hm…. I wonder if there’s a connection…