Owning a restaurant franchise isn\u2019t for the faint of heart. Franchise ownership can be highly rewarding, but it certainly still comes with its challenges.<\/p>\n\n\n\n
If you are considering buying a restaurant franchise but are not completely sure where to start, you\u2019ve come to the right place. In this article, I will walk you through every step of the process for buying a franchise ownership. By the end of this post, you\u2019ll be fully prepped to start your new restaurant business venture.<\/p>\n\n\n\n
So, are you thinking of purchasing a restaurant franchise? It’s one of the most common franchising industries<\/a> and definitely the most popular sector in the food and beverage franchise industry<\/a>. Here\u2019s my handy step-by-step guide to follow.<\/p>\n\n\n\n You can\u2019t just walk onto the field and expect to win. You need to know the rules, the players, and the plays. Before you pull the trigger and purchase a restaurant franchise, you\u2019ll need to do your due diligence, which means you should have a pretty broad understanding of the restaurant franchise market.<\/p>\n\n\n\n The U.S. restaurant franchise market is booming, projected to hit $893.9 billion in 2024<\/a>. That\u2019s not a fluke. Quick-service powerhouses like Taco Bell and Chick-fil-A are rewriting the rules of fast food. <\/p>\n\n\n\n That said, these are monsters in the restaurant franchise world. For example, you\u2019ll need between $575,600 and $3.3 million to open a Taco Bell.<\/p>\n\n\n\n Chick-fil-A, on the other hand, asks for a mere $10,000 upfront<\/a>. Sounds too good to be true, right? Well, what\u2019s the catch? Chik-fil-A takes 50% of pre-tax profits from franchise owners. That\u2019s the price tag franchisees pay to use the company\u2019s name and reputation.<\/p>\n\n\n\n Franzy<\/a> is your best friend when it comes to researching and comparing franchises<\/a>. The platform makes it much easier to gather all the data points to assist in making a confident decision.<\/p>\n\n\n\n The FDD<\/a> is your ultimate guide when learning how to buy a franchise restaurant. Every franchisor is legally required to hand over the FDD at least 14 days before signing the franchise agreement<\/a>.<\/p>\n\n\n\n Buried inside this massive document is essentially everything you need to know about the franchise business, such as the initial fees you\u2019ll pay, royalties payments<\/a>, and specific brand guidelines you\u2019ll be required to follow.<\/p>\n\n\n\n FDDs contain 23 items and will also disclose information about the company, such as past litigation, insurance claims, bankruptcy history, financial statements, and more.<\/p>\n\n\n\n It\u2019s not light reading, but I highly recommend that you thoroughly read through the FDD. After all, it is a direct insight into what running the restaurant franchise will look like.<\/p>\n\n\n\n It is important to pay particular attention to the numbers in the FDD. Initial franchise fees range from $10,000 to $45,000<\/a>, but some popular franchises may charge close to $100,000. As for royalties, most restaurant franchises charge a royalty fee of 4% to 9% of your gross sales.<\/p>\n\n\n\n Now that you\u2019ve picked your brand and read the documents, it\u2019s time to create a business plan<\/a> for your new restaurant franchise. A business plan won\u2019t just help you organize your plans and goals for the franchise, but it will also help you secure funding down the road.<\/p>\n\n\n\n Start with the big questions. Who is your primary customer base? Why will they choose you over the guy down the street?<\/p>\n\n\n\n Your business plan should map out the numbers with estimations for food expenses, revenue projections, staffing costs, and profit margins. <\/p>\n\n\n\n You\u2019ll also need to paint a clear picture of how your restaurant will operate. Who\u2019s managing the day-to-day operations? How will you train your staff? What\u2019s your marketing strategy?<\/p>\n\n\n\n Your business plan should include anything and everything that will go into your business. Don\u2019t leave anything to the imagination. If it isn\u2019t part of your business plan, it isn\u2019t going to be part of your franchise.<\/p>\n\n\n\n Opening a franchise isn\u2019t cheap. The average cost sits somewhere between $100,000 and $300,000<\/a>, though some high-cost franchises can set you back well over $1 million.<\/p>\n\n\n\n No matter what type of restaurant franchise you purchase, the fact of the matter is that unless you have this kind of cash lying around, you are going to need financing for your franchise<\/a>. And unfortunately, banks don\u2019t just hand out loans just because you asked nicely.<\/p>\n\n\n\n The Small Business Administration<\/a> is a good place to start. Their loans are tailored for entrepreneurs like you. But they\u2019re not your only option. Some franchisors offer in-house financing, making it much easier to secure funding. Others may point you in the direction of a reputable lender that specializes in franchise loans.<\/p>\n\n\n\n While securing financing for a restaurant franchise is no walk in the park, you certainly have options, and with a good credit score, a strong business plan, and enough cash to make a down payment, you shouldn\u2019t have too much of an issue getting a loan.<\/p>\n\n\n A clear, step-by-step breakdown to help you decide if franchising is right for you\u2014and how to get started.<\/p>\n\n\n\n\t\t\t Location is everything. You could have the best food, but if people can\u2019t find you or your location has too much competition, you\u2019ll likely struggle.<\/p>\n\n\n\n Think about traffic. The best places to open a franchise have heavy vehicle or foot traffic. Take busy streets, shopping centers, and college campuses, for example.<\/p>\n\n\n\n That said, you also want to make sure your restaurant franchise is a good fit for the location. A Taco Bell in a high-end mall? Probably not the best idea. But a Chick-fil-A near a busy highway might just hit the jackpot.<\/p>\n\n\n\n You\u2019ll also need to check zoning restrictions in your region and potentially ask for approval from the franchisor. Some cities don\u2019t want too many fast food chains, while others will bend over backward to welcome them.<\/p>\n\n\n\n This is where the deal becomes real. You\u2019ve done the research, crunched the numbers, and planned for the future of the franchise. Now, it\u2019s time to commit.<\/p>\n\n\n\n Just as with the FDD, I urge you to read through every inch of the franchise agreement. The franchise agreement isn\u2019t a friendly handshake. It\u2019s a legally binding contract with terms that can make or break your future. Take time to read the fine print and hire an attorney with experience in franchises to pick out any red flags.<\/p>\n\n\n\n Here are some red flags to look out for in franchise agreements:<\/p>\n\n\n\n When everything checks out and you\u2019re confident you understand every line, sign the papers. Congratulations\u2014you\u2019re now a franchisee!<\/p>\n\n\n\n After signing the franchise agreement, it is time to pay the franchise fee to the parent company<\/a>. <\/p>\n\n\n\n As mentioned, franchise fees vary wildly. Chick-fil-A\u2019s famously low $10,000 fee<\/a> sounds like a dream, but remember, they take a significant cut of your profits. Dunkin\u2019 Donuts<\/a>, on the other hand, charges $40,000 to $90,000 just to get started.<\/p>\n\n\n\n But the initial fee is just the tip of the iceberg. You\u2019ll also have to pay for equipment, renovations, permits, and initial inventory, not to mention the cost of leasing or purchasing property for the franchise.<\/p>\n\n\n\n Before you can serve your first customer, you\u2019ll need to get all of the necessary licenses and permits.<\/p>\n\n\n\n The list of required permits and licenses can feel endless, including food service permits, building inspections, alcohol licenses, signage approvals, and more. The more licenses and permits your franchise requires, the more time and money you\u2019ll have to spend getting them approved.<\/p>\n\n\n\n The exact permits you need depend on your location, and some state or local governments will require more licensing than others. The good news is that your franchisor will likely be able to assist you and will provide you with a list of the different permits you\u2019ll need to acquire.<\/p>\n\n\n\n My recommendation? Make sure to get it right. One missed permit can shut you down before you even open.<\/p>\n\n\n\n A restaurant is a team sport, and the players you pick will make or break your success. Look for people who aren\u2019t just qualified but who fit the culture of the brand. When it comes to training, you may be in luck, as many franchisors offer comprehensive programs.<\/p>\n\n\n\nStep One: Research Different Franchises<\/h3>\n\n\n\n
Step Two: Read Through the Franchise Disclosure Document<\/h3>\n\n\n\n
Step Three: Draft a Business Plan<\/h3>\n\n\n\n
Step Four: Secure Funding for Your New Restaurant Franchise<\/h3>\n\n\n\n
Download the First-Time Franchisee Guide<\/h4>\n\n\n\n
Step Five: Choose Your Location Wisely<\/h3>\n\n\n\n
Step Six: Review and Sign the Franchise Agreement<\/h3>\n\n\n\n
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Step Seven: Pay the Franchise Fee<\/h3>\n\n\n\n
Step Eight: Acquire Essential Licenses and Permits<\/h3>\n\n\n\n
Step Nine: Hire and Train Staff<\/h3>\n\n\n\n