Should you franchise your restaurant brand?

Franchising can be a path to growth and is a business model that allows an owner to grow their brand through expansion by others. In the restaurant industry, most chains have grown to the size they are through some combination of opening company-operating units along with growing their franchised units. Navigating the franchise path includes examining your restaurants business model, selecting the right establishment location and many other facets this article will explore so you can answer – is franchising right for your restaurant brand?

Determining a proven business model

If you are thinking of franchising, you must first have an operating business model that has demonstrated that it can be successful through a proven track record of sales and profits. While in rare cases restaurant brands have successfully franchised after only opening a single corporate-owned location, this is not common. Operating multiple successful corporate restaurants prior to franchising gives you more credibility and further proof that you have a sound concept. Additional factors include:

• Identify your unique selling proposition: What sets your concept apart from the rest? If you want to franchise, you must know this and be able to articulate it in a relatable manner
• Replicable concept: This may be more challenging than you might think. To be able to be easily replicated, you need the following:
  - A footprint that will work in different market environments and different types of locations
  - A menu that is appealing with recipes that can be easily executed, but still difficult for competitors to duplicate
  - A brand image that is unique but not so far out there that it is difficult to replicate

Finding the right location

You will need selection criteria to use as a baseline for evaluating any potential locations for franchisees. These should include demographic targets, building size, signage requirements, parking and traffic counts. Other important elements to consider are:

• Attractive and efficient floor plans: Being able to have the appropriate-sized (and equipped) kitchen, dining area, storage areas, takeout and delivery staging are more important than ever for the success of your restaurants’ growth, whether through company expansion or franchising
• Logistics plan: If your purchasing entails sourcing from multiple different vendors that are local to you, you will need to address how to get those same products to your franchisees
• Comprehensive system: This system needs to be reflected in an operations manual that details every step and standard necessary to operate the restaurant successfully

Setting your franchisees up for success

Even though your restaurants may be profitable for you, your concept should be profitable for your franchisees. That means that even with the addition of royalties, marketing funds and other franchisee costs, your franchisee can still be profitable. Not only do your franchisees need to be profitable, but if they become your franchisee, they need to see a strong, potential ROI. Here are ways to achieve this:

• Selecting successful franchisees: One of the most common mistakes made by new franchisors occurs when a franchisee is approved based solely upon his or her ability to invest. As a franchisor, you will need to get to know your franchise candidates. Do they have experience operating a restaurant? Will they be able to function inside your system parameters? Are they leaders that can recruit, retain and inspire a talented team of managers and crewmembers?
• Building support systems: If you plan on being successful as a franchisor, you will need to make certain your franchisees are successful. And to accomplish this, you will need a team of support staff to help them with everything from training and marketing through opening and ongoing quality compliance coaching

Business requirements and paperwork

For most successful restaurant franchisors, this means growing concentrically based upon your “home” market. While your brand may be legendary in one area, you may still be unknown in others. Growing concentrically will leverage your brand-awareness, maximize your ability to support your franchisees and increase the value of your marketing dollars. Before you begin your journey to growth, don’t forget these business requirements:

• Trademarks and copyrights: Trademark and/or copyright your logo and any other key elements of your brand. This will typically take a bit of time and significant legal fees
• Franchise Disclosure Document (FDD): Different states may have different laws regarding franchising, so working with a consultant and a business attorney will be necessary to keep you moving in the right direction and ensure that you stay in compliance
• Audited financials: You will need financials that have been audited for accuracy in order to move forward with franchising

Curating a vision and game plan

If your vision can ignite the passion of others and your plan reflects a realistic path for growth, congratulations you are on the right track! With that being said, you will need to decide how you want your franchise to grow. For example, Chick-Fil-A mandates that their franchisees be owner-operators which limits the number of units that any franchisee can purchase and operate. Other franchisors make seek out only multi-unit developers. It is imperative to think about this before you begin franchising.

Expansion through franchising, while an attractive path for many restaurateurs, is certainly not suited for all operators. While entrepreneurship is a highly desirable trait to have when you develop your concept, it will take another set of skills to propel your vision forward.

About the author

David Foster is a seasoned restaurant and hospitality consultant.

About Baker Tilly

For questions, reach out to Baker Tilly's restaurant practice leader, Todd Bernhardt.