What You Should Know About Buying a Food Franchise
By DAVID STEIN
By DAVID STEIN
If you have the capital, there is no better time to buy a franchise than right now. While many potential franchisees dream of owning their own restaurant franchise, there are a few things to note prior to venturing down the path of franchising.
IS RESTAURANT EXPERIENCE NECESSARY?
My experience says yes, especially for those wanting to buy into the major brands. Some lesser known concepts may be willing to overlook this, specifically if you have extensive experience in corporate America on the management side. But major brands, especially the ones seeking multi-unit candidates, are looking for some type of restaurant managerial experience.
The food business is a management business. Having management experience is important, especially in dealing with unskilled labor (vast majority). If you have mastered management at some point in your career, you have an edge in opening your concept. Your hands-on education will also be valuable in your selection of the right manager to operate your location and future locations.
These days many major brands only want multi-unit operators. This means you, and your management staff, will be responsible for potentially hundreds of employees (based on owning 3-5 units). You must have the ability to improvise when someone calls in sick or quits. These are headaches business owners face daily. Understanding how restaurants operate will ease the execution of your team, which will become much smoother as you become a more established franchisee and restaurateur.
IS MULIT-UNIT OWNERSHIP THE BEST ROUTE?
Multi-unit operators strike franchisors as their top option when looking for franchisee candidates. For franchisees, taking the multi-unit road is also the most financially sound. When you become a single-unit franchisee, it will take longer to reach financial freedom (if that is what you are looking for).
This brings me back to my first point – the need for restaurant experience. With restaurant experience, and a good manager in your first location, you will be set up for continued success, as that manager can become a part of your multi-unit development team. That manager can then manage two locations as you focus on finding your new real estate, extended financing options, and marketing your business.
Multi-unit goals will impress franchisors and will set you up, if done right, for better success and a better exit strategy.
WITH THE DOWN ECONOMY, IS FINANCING STILL AVAILABLE?
Financing is more difficult to come by than it was a year ago, but for the major brands, banks are still somewhat friendly. If you are joining a lesser established restaurant concept, you should be prepared for a longer fight for financing. Banks will look at your plans similar to how franchisors will. Banks want to see restaurant experience. They want to see long-term goals. They want to make sure you are set up for success so that you will eventually have the best chance of returning their loan.
DO I NEED REAL ESTATE EXPERIENCE?
If you have it, it will help you to understand location and lease negotiations. Experience is the key word in venturing into restaurant franchising. The more you have, the easier business operations and growth will be. In my days at Dunkin’ Donuts, we found that the best candidates for new development were the ones who understood at least the basics of real estate and construction. We also found that the best candidates were the ones who had good partners. It was always attractive to us, the franchisor, to see two sides of a team: one that understood real estate and construction, and one that understood operations.
If you have limited real estate experience, franchisors, in most situations, will hold your hand throughout the real estate process, but you will have to rely on your own skills to make the best real estate decisions. And the good thing about today’s economy is that landlords are hurting too. They are coming down to reality and are bending over backwards to have major brands fill their spaces. Think about that when you start your brand search.
EVENTUALLY I WILL SELL MY CONCEPT, HOW DO I PREPARE FOR THE END?
Every good beginning has a great end. Your plan should include an exit strategy. Sure, you will want to build your 3-5 units to the top, but then what? Think about the end sale. Think about setting your franchise empire up for the end.
Keep in mind it is much easier to sell a franchise that has brand awareness and name recognition. You will have a much bigger pool of applicants when selling an established concept. However, if you choose to go with a relatively new brand, remember, if you use your experience and your success and continue to connect with your consumers through strong local store marketing, you can be influential in taking your younger brand to an established brand. This will be big as you eventually look to mature your concept portfolio by becoming a multi-unit/multi-concept franchisee.