What do BJ’s, Olive Garden, and Applebees have in common? They are all very successful franchise restaurants that everyone can’t stop talking about.
It might be a lucrative financial opportunity to own a restaurant, but expanding it into a franchise can lead to even more creative possibilities and economic profitability.
A lot of people might be hesitant to take the risk. Little did they know that there are significant advantages to franchising a restaurant. Why franchise, you may ask?
If you pay attention to legal requirements and regulations, franchising a restaurant can generate economic rewards. At Rodney R. Hatter & Associates, we provide top-notch legal services for those in the restaurant business. Here’s our guide to why you should convert your restaurant into a franchise.
Capital
One of the most common issues with business expansions is a lack of money. Entrepreneurs often find that their funds limit their desire to grow. Luckily, franchising is an alternative form of obtaining capital.
One of the benefits of a franchise is that it allows business owners to expand without the risk of debt. Because a franchise provides all the necessary capital to operate and open a unit, it enables anyone to grow by using resources from others.
In addition to that, business owners will not have to commit to any contracts or sign a lease; they can expand with practically no liability at all. That means the overall franchise advantages are that you can start with limited capital and liability.
Fast Growth
A common fear amongst entrepreneurs is that someone else will beat them to a profitable market. Franchising remains one of the few ways to ensure that business owners capture a market position before competitors get to it.
Franchising not only allows business owners to have excellent financial leverage, but it helps people leverage human resources as well. Franchising allows companies to compete with larger companies to saturate the market before these companies can even respond.
Find out more about Rodney R. Hatter & Associates’ approach to franchising.
Inspirational Management
A lot of entrepreneurs want to keep an excellent manager on the team. Unfortunately, when you hire and train a new manager, you see them leave and get hired by competitors. The downside is that a hired manager may or may not have the same passion for their job as you do.
However, franchise management is another story. It gives entrepreneurs the solution to replace an owner with a manager. After all, no one is more inspired and motivated to run the business than someone who is invested in the success of the operation.
Basically, the franchisee acts as the owner/manager, and their savings funnel into the business. Therefore, compensation will be in the form of a significant profit. Since the franchisee is incredibly invested in this business, it will be hard for them as a manager to leave. Plus, the manager or franchisee will continue to upgrade their knowledge about the market to help run it more smoothly and effectively.
When it comes to franchise management, you know that they will take the business very seriously. That means they will ensure that the employees are qualified and that the location is kept clean. Because the stakes are higher for franchisees, the franchise manager will always find opportunities to improve the business.
A franchise manager will keep an eye on the expenses such as staffing, labor costs, and item expenses. In addition to that, there are studies that prove that the franchise manager outperforms regular managers when it comes to generating revenues.
Leverage staff
Since the franchisee will take on the majority of the responsibilities, then franchisors can leverage the effort by decreasing the number of staff that is required to run the business.
Easy supervision
The franchisor is not responsible for managing the employees. That means if a crewmember is sick in the middle of the night, they don’t call the franchisor or the business owner; they called the franchisee to let them know.
The franchisee is responsible for finding a replacement or covering a shift. Another thing to keep in mind is that if the franchisee decided to pay the wrong salary that does not match the marketplace, employed there for friends and family, or spend unnecessary amounts on purchases, it would not affect your profit. When you get rid of these responsibilities, franchising becomes direct access to profit and success.
Training and Support
Many franchises offer training and support, not just for the staff, but for the franchisee. Domino’s is actually known for encouraging women and minorities to apply for a lower franchise fee and then offering training programs to get them ready for the challenge.
This is extremely valuable, especially to investors that are new to operating a franchise. There’s a lot to learn after buying into a franchise and you’ll need to invest not just money, but your own time. Getting prepared for this new opportunity is extremely important, so it’s definitely a benefit that many franchisors offer this training and insight into how to become successful. That support system is invaluable.
Increase value
When you combine the results of increased profit, fast growth, and highly organized business, it does make sense that becoming a franchisor gives your business the potential to reach a higher value. When it comes time to sell your business, being a successful franchisor indicates scalable growth and makes your company more desirable to potential buyers.
Have more questions about franchising? Read our FAQ.
Excellent Profit
The combination of a unique staff leverage system and efficient supervision modality is the reason why the franchise organization is highly profitable. This is mainly because the franchisor can depend on franchisees to partake in multiple functions of the business, such as lease negotiation, local marketing, site selection, hiring, training, payroll, accounting, human resources, and much more.
Because of this, the franchisor’s organization has already leverage off a system that is ready to support a company operation. Therefore, it’s no doubt that the franchise organization will experience an elevation in profit.
Lower Inventory Costs
Here’s another great way franchisees save money. When it comes to inventory, things can add up. But sometimes this isn’t the case with franchises, since you can take advantage of the franchise group’s collective buying power. This means lower inventory prices.
You’ll also have added bargaining power with vendors due to the name and recognition. Vendors know you’ll be coming back for more and so will other locations under the same name, so they’ll definitely want to land the sale.
Lower risk
Since the franchisee has all the responsibility for the investment in the operation, the franchisor tends to have a lower chance of liabilities. Because of the various duties that the franchisee has to partake in, they are the ones who are responsible for any obligations.
For example, a franchisor is not liable for any discrimination or regulation breach that occurs, and it is the franchisee who has to delegate a solution.
See which restaurant franchises chose Rodney R. Hatter & Associates for legal services.
Getting into the second and third market
Since the franchisees are the one who takes all the responsibility for daily operations, the franchisor has a chance to look into other markets that could contribute to a higher profit margin.
You should consider a market in which the franchisee has a high probability of success. However, if you prefer to develop a corporate unit along with franchising, you may have limited capital to do so. The franchisees, on the other hand, can open and operate on secondary and tertiary markets that are not high on your priority list.
Loyal Customers
The hardest part about opening up a business is finding your customers. Fortunately, with franchising a business like a restaurant, you get to bypass all the obstacles that go into branding and marketing to attract new customers.
Investing in a franchise provides you with a loyal customer base so you can focus on expanding and growing. When you purchase and establish the brand, it can accelerate the growth and profitability by bringing in prospective employees and customers from the first day.
Good Reputation
Going off of that point, restaurant franchises are usually popular in the area. Many times, that also means that the franchise owner is well-respected and recognized, giving you immediate notoriety through your involvement with the franchise. You can even become a leader in your community.
A lot of franchise owners will get involved with special town or city events, fundraising efforts, and other activities that help you make an impact on the surrounding neighborhoods. Some of the most charitable restaurant franchises are:
Little Caesers: Veteran program
This program provides military vets with a $5,000 franchise fee reduction, financing benefits and even $5,000 credit on equipment. Disabled veterans are eligible for even more benefits, including a waiver of the franchise fee.
The Human Bean: Farm Friendly Direct
This coffee franchise has been running their Farm Friendly Direct program since 2002. Franchisors agree to above-market prices from farmers who operate with sustainable practices. The Human Bean then donates funds and supplies to schools in India and Costa Rica and supports El Ssalvador’s tree restoration movement, among other countries’ causes.
Jamba Juice: Rewards for Charity
Jamba Juice’s Jamba School Appreciation Program encourages PTA members to buy from Jamba Juice. The proceeds go to the local and national PTA.
Taco Bell: The Taco Bell Foundation
Taco Bell has participated in programs like the United Nations World Food Program, providing over 90 million meals to families in need. They also provide grants to organizations that focus on community and hunger relief. Taco Bell also has the Taco Bell Foundation, which aims to lower teenage drop-out rates by offering youth support services.
McDonald’s: Ronald McDonald House Charity
For over 36 years, The Ronald McDonald House Charity has been running various charity programs. Their most popular charities include the Ronald McDonald House, which offers housing to displaced families, the Ronald McDonald Family Room, which offers rest to family members visiting someone in the ICU, and Ronald McDonald Care Mobile, which provides health care to places with uneasy access.
Final Note
Like any restaurant business, there are advantages and disadvantages of franchising. One of the key advantages of a franchise is that you have limited liability and higher profit margins. This is mainly because when you hire a franchisee manager, they are often more invested in your venture. As a result, they tend to stick around and generate more profit than a regular manager.
Plus, they play a significant role in managing the restaurant. If anything happens, you are not liable for the risk. Instead, your job as a franchisor is to focus on incorporating new marketplace ideas to further expand and increase profit margin.
There are also other franchising advantages such as increased access to a loyal customer base, higher value, staff leveraging, increase speed of growth, motivate management, and much more.
With all this in mind, it’s clear that owning a franchise can help you bring your business to the next level and allow you to reap more benefits. If you’re thinking about starting a franchise, you want the law to be on your side. Find out more about our legal services at Rodney R. Hatter & Associates and how we can assist you with the legal side of owning a restaurant franchise.
