If you’ve ever dreamed of opening a restaurant, a franchise could be the perfect opportunity to enter the market and own your own restaurant. In the food industry, a restaurant franchise offers plenty of benefits like built-in name recognition and proven marketing strategies. However, buying into a food franchise isn’t always easy, and depending on the brand, it can require significant up-front costs. As with any business opportunity, before you sign on the dotted line, you need to do your research and due diligence.

Here are some tips to consider along with a step-by-step look at finding and buying a food franchise that is right for you:

Defining “Restaurant Franchise”

The first step is understanding what defines a restaurant as a franchise. For example, Starbucks is one of the most recognized brands in the world, however, it is not a franchise. All Starbucks stores are corporate-owned and operated. When you buy into a food franchise, you are purchasing a license giving you the right to open and operate a branded restaurant.

In a franchise agreement, part of the deal is that you, the Franchisee, pay a percentage of sales (royalties) to the corporate office (also known as the Franchisor). For this royalty, the Franchisor takes care of the marketing, menu design, supply chain, quality control, and problem-solving for all of its Franchisees.

This can help to limit risk by providing the Franchisee with a proven brand, training, support, and other services (like food supply, restaurant equipment, etc.) that can help you to succeed in the marketplace.

Defining Your Market

Understanding and defining your market is a critical step to narrowing your choices when it comes to a food franchise. Restaurant franchise opportunities include major and smaller fast-food franchises, as well as fast-casual dining establishments and can include kiosks as well.

There is no way someone could conduct this kind of research on location and saturation as it was referred to – in other words, there is no such thing as saturation when it comes to franchising.  Franchising is going into a highly competitive market, where there is already demand and need and leveraging that demand and need by being different than the current players in that market.

A restaurant franchise can be an expensive venture. Cost is often the most important element in defining your choices when it comes to buying a restaurant franchise. Another factor to consider is your personal experience when opening a restaurant. Many franchisors will require at least some restaurant experience before granting a franchise.

When researching your options, understand that many of the more popular brands will require you to have a minimum net worth, liquid assets, as well as some experience in the industry. Others may require you to have a proven franchise consultant guiding you in order to apply. Many restaurant franchises will list their requirements right on their website.

Tips for Making an Informed Decision About Buying a Food Franchise

Once you’ve defined your market and identified a potential food franchise choice, it’s time to get specific and do your due diligence. Here are some tips on the information you should seek out as you build toward a decision.

  • Obtain and Study the Franchise Disclosure Document

This document details information about the company and its solvency. Any franchise is required by law to disclose any qualified prospective buyer with this legal document prior to signing any agreement.

  • Check the Potential Projected Overall ROI

This is important to your long-term success. You are entering into a partnership with the Franchisor. You need to know the profit vs liability, and the total investment needed as a franchise operator. Parent company or franchise locations?  Both are disclosed in the FDD.

  • Ask About the Company’s Management Team

business owners smiling As a group, do they have a strong record of growth? How strong is the company’s training programs? Their marketing and brand presence? This is important information if you need guidance in moving your business forward.

  • Talk to Current and Former Franchise Operators

This is a crucial step. Do the current operators have a good experience? Are they in it for the long haul? Are they making a profit? Would they recommend this franchise to someone else?

  • Research the Company’s Long-Term Viability

Do they have a track record? Are they a newer franchise or start-up? Do they have a good quality product? What is their 5 year or 10 year failure rate? You should go into any franchise agreement expecting a long-term (10+ year) deal and commitment. Make sure you’re both into it for the long haul.

  • Think About Management

Do you plan to be an owner/operator, or will you invest in a manager? Regardless of what you choose, as the owner, you should understand the business and be ready to jump in. What happens if your manager quits? If you don’t have a deep understanding of the business, it can mean trouble!

Create A Business Plan

You will need a restaurant business plan for any bank or investor financing. This document can also help you fill in any gaps in your concept. By doing your due diligence you should have gathered much of the information you’ll need to create a business plan, including the population base, profiles of the local economy, and potential locations. As part of creating a restaurant business plan, you’ll need information about the franchise history, current financial status, and growth projections – all information you should have gathered during your research stage along with their disclosure document.

a fork on a green backgroundAs a part of the process, you will at some point need to be approved by the restaurant franchise and this business plan will help you to put any financing into place. At this point, you will be presented with a lengthy contract by the Franchisor. Make sure at this point that you have a franchise attorney review any documents with a fine-tooth comb before signing anything. Most importantly, know what can happen if you want to exit.

Make sure you understand all of the terms of any agreement and that you incorporate these terms into your business plan. For example, are you locked into paying a fixed amount each month regardless of profitability? Who owns any equipment? Are there liquidated damages tied to the contract? Who benefits from any sale of the restaurant franchise?

Buying a food franchise is a great way to break into the restaurant industry and offers many benefits. However, it can require significant capital and can come with many legal strings. In order to do due diligence at the highest level, and make the best decisions, we strongly recommend you work with an advisor and a franchise attorney who have experience with the intricacies of restaurant franchising. Be prepared to put in some hard work and you can gain abundant possibilities as a franchise owner. No one said it would be easy; they said it would be great.