How to Franchise Your Restaurant
Most restaurant owners are constrained in their ability to grow, having limited capital to fund the opening of new restaurants. It can be very difficult to oversee a larger restaurant base without adding significant resources to your operation. But franchising a restaurant provides a compelling growth opportunity for many restaurant owners, offering an attractive way of getting around many of these restrictions. The franchisee is responsible for financing the opening of new restaurants, signing the relevant leases and overseeing restaurant operations. As a result, many restaurateurs seek out franchise opportunities once their restaurants have more than two or three stores.
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Instructions
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1
Use RestaurantFranchise.com to determine the economics of the franchisor-franchisee relationship for similar concepts. You can search by a specific company name, or you can research the information by concept (sports bar, deli, fine dining, etc.). Pay particular attention to what franchise fees and commission percentages the comparable franchisors collect from their franchisees.
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2
Develop a uniform franchise offering circular (UFOC), which is the main agreement that will govern the relationship between you and your franchisees. The UFOC is an extremely lengthy document and will incorporate the information you researched in Step 1. The major terms the UFOC will cover include the franchise fee that franchisees are required to pay; what percentage of gross restaurant revenue your company will take from the franchisees; how much money (if any) you are required to spend each year on marketing and how much the franchisees will contribute towards marketing expenses; and any limits on the number of restaurants a single franchisee can own.
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3
Create a detailed presentation about your restaurant concept. The presentation should describe the history of your restaurant and how your restaurant differs from the competition. You should also provide information on the growth and profitability of existing stores.
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4
Place advertisements in the local paper and on the internet to make prospective franchisees aware of the opportunity. You should schedule a road show to different geographic areas, where you will have an opportunity to present your concept to interested parties. Be sure to include information about the road show in your advertisements.
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5
Meet with prospective franchisees during the road show. Provide them with your presentation and answer any additional questions they may have. You should also distribute the UFOC to the prospective franchisees if they ask for it.
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6
Open a training center, where you will teach franchisees how to manage the restaurant concept. The training center should be an exact replica of a current restaurant, particularly the kitchen and serving area. The training center will be used to educate franchisees on how to properly execute your concept's menu and how to manage the stores. You should only open the training center once you are confident that there is sufficient interest from prospective franchisees.
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7
Interview franchisees who express an interest in your concept. You should pay particular attention to whether or not they have successfully run restaurants in the past. Ask them how often they eat at your restaurant, what they believe is special about the concept and why they are passionate about your restaurant vs. other opportunities. Determining their passion and commitment to the restaurant industry in general, and to your concept in particular, will be critical.
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8
Sign the UFOC with franchisees who have passed your interview screening criteria, and collect the franchise fee. Some franchisees may try to negotiate certain aspects of the UFOC, so decide how flexible you are willing to be beforehand.
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Tips & Warnings
In most cases, the franchise fee is nonrefundable, even if the franchisees never open a restaurant. In some cases, a franchisor may offer to refund part of the franchise fee if the franchisee is unable to open a restaurant. However, unless you include this language in your UFOC, you are under no obligation to do so. Franchisees may require assistance when opening new restaurants. You should be prepared to consult with them and guide them through the process, particularly if they are opening their first restaurant.
