If you’re looking for a new business opportunity, you may have considered franchising. Whether you want to expand an existing business or become a franchisee, there are many benefits of franchising.
But if you’re new to the idea and don’t know how to get started, you probably have many questions. What is franchising, and how does it work? In what ways can franchising benefit your business?
In this article, we’ll answer those questions and more, explaining the benefits of franchising and providing you with a step-by-step guide to starting your own franchise restaurant business.
Franchising is a business model allowing an existing business owner to expand their operation by selling aspects of their business to others. The franchisor sells the use of their brand to a franchisee, who then uses the elements of that brand to start their own small business.
Let’s say someone wants to expand their restaurant business. The owner can sell some of the rights to their restaurant’s brand in the form of a franchise agreement. The buyer of that agreement — the franchisee — can then open a restaurant with the same company name and branding as the seller.
Rather than opening an independent business of their own, franchisees open their new business under the existing branding of the franchisor’s company.
Franchising might sound like an unusual business model if you’re unfamiliar with it. However, many hugely popular international brands operate under a franchise system.
Many successful franchises are quick-service restaurants. Well-known examples include McDonald’s, KFC, Burger King, Taco Bell, and Subway. However, franchising in the United States covers almost 300 different industries.
Convenience stores like 7-Eleven also use franchising to expand. Even some large hotel chains run on franchises; Marriott and Hilton are two examples.
However, smaller businesses can also work on a franchising model. One of the benefits of franchising is that it’s an easy way for a business owner to grow their brand on a large scale with less risk.
There are several benefits of franchising, both for the franchisee purchasing the rights to a franchise unit and the franchisor selling those rights.
First, let’s look at some of the benefits of franchising for the franchisee.
One of the main benefits of franchising is that you don’t have to start from scratch regarding brand recognition, as you’re purchasing the rights to an existing company.
You may be opening a new restaurant or retail business, but you’ll have a customer base that’s already familiar with your brand. This means that the hard work of establishing brand awareness has already been done for you, and customers are more likely to come into your new franchise without you having to seek them out.
Another positive aspect of purchasing a franchise unit is that franchisees can get access to help with their business from the franchisor.
Depending on the size of the franchising business, the franchisor may provide a ready-to-go business plan that can help the franchisee set up their new unit according to the brand’s regulations. This can ease the process of starting up a new business, as the franchisee won’t have to make too many decisions relating to the day-to-day operations of their new enterprise.
Other franchisees of the same company could also be part of a wider franchise network — the success of each unit can depend on the brand's overall success, so other franchisees are often happy to help newbies get started.
You could benefit from lower marketing costs if you’re purchasing the rights to a national or international retail business.
Large chains like McDonald’s and Hilton have internationally recognized brands, but they also run regular advertising campaigns to keep people informed about their products and services. Franchisees of famous brands like these can reap the rewards of the franchisors’ marketing efforts without having to chip in.
Another significant upside of becoming a franchisee is that you might enjoy bigger profit margins sooner than if you start a business from scratch.
Franchising a well-known brand means you can expect customers almost as soon as you open. People will already know about the company, so they’ll be keen to come in once you’ve opened your doors. This means you can start enjoying returns on your initial investment more quickly. Plus, having more customers means earning more profit. Winner!
There are also many benefits of franchising for the person selling the rights to their business.
If you run a successful restaurant, deciding to operate on a franchise model can be a great way to increase your income. It’s an easy and effective way to grow your business without having to double your workload.
After organizing the initial paperwork and dealing with the startup costs, you can take a step back from the business's day-to-day operations and add passive income to your revenue stream.
Franchising is also a lower-risk method of expansion. You’re not the one putting up a large sum of money, so you can reap the rewards of a successful business (usually a percentage of the franchisee’s profits) without the upfront investment.
While there are numerous benefits of franchising, there are some downsides worth considering before you take the plunge.
One negative for the franchisee is that you’ll likely have many restrictions on what you can do. Running a franchise means you have less freedom in the day-to-day running of your business than you would if you owned your own business. Entrepreneurs might find the franchise agreement too prescriptive.
The franchise rights to well-known brands incur high startup costs for franchisees. Opening a franchise of a national or global chain will take a sizable initial investment. Moreover, there are often annual franchise fees in the form of royalties payable to the franchisor. You’ll need to take this into account when writing your business plan.
Disadvantages for the franchisor include losing control over the brand. You might see people doing things to your business that you wouldn’t do yourself, which can be challenging.
There are also several hurdles to tackle in setting up franchises. The Federal Trade Commission requires franchise businesses to provide a franchise disclosure document (FDD) that details their franchise company and helps potential franchisees figure out whether it’s the right franchise for them.
If you’re considering franchising a restaurant, here are seven steps to follow to start your own restaurant franchise and turn it into a successful business.
Choose the right franchise opportunity: Research pricing and flexibility of the contract, and check out the customer base. Use this research to determine how likely you are to succeed.
Write a business plan: A detailed business plan is essential in starting any new business.
Secure funding: Lenders will consider the reputation and success of the franchisor, so you choosing the right business can help you secure funding.
Find a suitable premises: Although a lot of the marketing will have been done for you, you’ll still need to choose the right location for your new restaurant. Look for places with high foot traffic to encourage walk-in customers.
Hire staff: Choose a team of experienced, hard-working staff who can help turn your new business into a success.
Set up a restaurant ordering system: There are various options available, but self-service devices like KioskBuddy are excellent for counter-service restaurants.
Open your doors: Say hello to your first customers!
From increased profit margins to reduced levels of risk, there are many benefits of franchising, both for the franchisee and the franchisor.
Opening a new restaurant franchise is a big venture — but with the right tools behind you, you’ll be primed for success. Self-service kiosks are a fantastic addition to a new quick-service restaurant franchise. KioskBuddy is a quick and easy-to-use kiosk app that lets you turn your tablet into a self-ordering device. It also enables you to customize the checkout appearance with the colors of your franchisor’s branding.
Sign up for KioskBuddy today to receive a 30-day free trial.