Pros and Cons: Buying a Franchise Restaurant

Written by  on 01 April 2016

Opening a Restaurant E-bookDepending on your personality, your managerial style, and your business goals, a franchise may be the perfect choice for your new restaurant — or it may be the wrong decision. Here are the pros and cons of buying a franchise restaurant related to four considerations every new restauranteur needs to consider. 

Concept and Brand

To be successful as a restauranteur, you must develop a concept for your restaurant based on your target customers, the experience you will offer them, the menu, operating procedures, and standards for customer relations. You must also establish your brand — which is more than a just a logo; it is how customers and prospective customers identify you and understand what differentiates you among your competitors.

Pros: Franchisors have a proven concept and an established brand. The risk associated with an untried concept is removed, and the day you buy a franchise restaurant, customers will already recognize and have familiarity with the brand.

Cons: You lack creative control to make changes to the concept or the brand. Your business investment is in someone else’s ideas and vision, not yours.

The Time from Decision to Grand Opening

Once you decide to open a new restaurant, you need to find and acquire your location, renovate to reflect your concept and to comply with code requirements, install necessary equipment and technology, and stock your shelves with supplies and ingredients. This is not only an investment of money, but also of time if you need to research suppliers and the right products for your establishment.

Pros: Much of the research into what is needed to open your franchise has been done for you. When buying a franchise restaurant, you get a “turn-key restaurant solution.” Franchisors create repeatable processes that guarantee results — including how to open the restaurant. You can use their experience to successfully get to your grand opening more quickly. Also, many franchisors have negotiated deals with suppliers based on purchases their large numbers of franchises represent. This buying power is passed on to you.

Cons: Your success as a franchisee will be rooted in how you follow the established, proven processes — you won’t be able to deviate from franchise guidelines. In addition, you may be limited to dealing only with certain suppliers.

Capital Investment in Your New Business

Whether you open an independent restaurant or a buy a franchise restaurant, it will take a significant capital investment to get the project started. There will be many expenses related to acquiring a location, construction or renovation, equipment, stock and supplies, and labor before you serve your first guest. 

Pros: Some franchisors have relationships with lenders who can help you finance your business.  

Cons: Franchise fees can be significant — often more than it would cost for you to start your own business. You may also need to budget for royalty, marketing and advertising fees throughout your time as a franchisee.

Exit Strategy

Even though you are considering a new business, it’s wise to give thought up front to your exit strategy. A successful independent business can be attractive to potential buyers, but the pool of potential buyers interested in your restaurant may be small.

Pros: When you buy a franchise restaurant, your contract may include provisions for the franchisor to buy your franchise back when you are ready to sell.

Cons: If, for some reason, you want to close your business before the end of your contract, you may still have financial obligations. Make sure you thoroughly understand your agreement.

As you make your own list of pros and cons, whether to choose a franchise or an independent restaurant for your new business venture will become more apparent. Carefully considering your options can help ensure your investment of time and money will be the right one — with the best return — for you.

Opening a Restaurant E-book

Read 1089 times Last modified on Friday, 01 April 2016 12:45

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