Every restaurateur inevitably looks forward for restaurant expansion. Any business’s goal is to grow its operations and make money. Restaurants are not an exception, but when the time comes to grow, owners rarely know how to scale their business. Different expansion techniques are appropriate for various situations. Here is a guide on restaurant franchising that will assist you in one of the most popular methods of business growth.
A businessperson must be aware of the pros and cons of expansion, and apply them to his or her current situation to determine which method of expansion is most appropriate for the restaurant. Each type of expansion will have advantages and disadvantages. While some people think restaurant franchising is the direction expansions in the restaurant industry are going, many people have the misconception that it is not a good approach for restaurants.
While there are many benefits to restaurant franchises, there are also many drawbacks. Here is our take on the franchise argument: first, comprehend the basis behind the approach, then weigh its advantages and disadvantages. If you are looking forward to franchise a restaurant, this article is for you!
What is Restaurant Franchising?
A franchise is a brand that an investor (the franchisee) has acquired the right to utilise. The parent restaurant creates the brand, the franchisor (parent restaurant) controls the operations and management of the restaurants, and the franchisee merely uses the brand name to generate revenue. The Franchisor makes the major decisions, such as the manner of training, the location, and the type of technology to be used, while the Franchisee manages the day-to-day operations. It is a contractual arrangement with established standards and hierarchies that specify how the franchise is managed. You have a variety of franchise models from which to pick.
A restaurant owner may decide or may not decide to use restaurant franchising for a variety of reasons. To learn more about this option, we examine the advantages and disadvantages of restaurant franchise growth.
Pros Of Expanding Through Restaurant Franchising
When a restaurant is looking to expand, restaurant franchising is one of the most viable options available. The reason that this trend has picked up is that it comes with distinct advantages for the Franchisor. Here are some restaurant franchise advantages that will make you consider investing in a franchise:-
1. Access to capital
The expense of expansion is one of the main obstacles for restaurant businesses. There are many possibilities for company loans, but they aren’t always successful. Although it will cost you time and money to franchise your business, it also has the potential to bring in large sums of money in the form of franchise fees.
By growing your company as a franchise, you can do so with less debt. As funds become available from franchisees, the firm expands rather than taking on debt through loans. Because the franchisee signs the deed to the business’s physical location and reduces the franchisor’s overall responsibility, the franchisor also assumes very little risk about the franchisee.
2. Efficient growth
It takes money and time to launch a business’s first location. Opening a second location might be equally challenging. The process is more effective and the founding business owner is relieved of responsibility when that load is shared with another business owner.
Starting a franchise can make opening several locations considerably easier when you’re looking to expand your restaurant business.
3. Minimal employee supervision
The hiring and management of personnel are one of the major stresses a business owner faces. It costs time and money for a franchisor to open a franchise’s first location. A second location might present similar difficulties. When that burden is shared with another business owner, the process is more efficient and the original business owner is released from liability.
If you want to grow your restaurant business, starting a franchise can make opening multiple locations much simpler. All you have to do is train the franchisee and share your business expertise with them. In general, the franchisor has no involvement in employee management, hiring, or firing.
Due to the less need for employee supervision, the franchisor can concentrate on business expansion rather than day-to-day management. The franchisor is concentrated on the big picture for the success of the firm rather than worrying about whether an employee will show up for their shift or not.
4. Increased brand awareness
Gaining more brand exposure is only one of the many advantages of franchising. Additional individuals are aware of the brand as it expands into more locations. Additionally, the brand can become more lucrative and successful the more these clients get to know and appreciate it. The franchisor and the franchisees of a multi-location franchise stand to gain greatly from this increased brand recognition.
Disadvantages of franchising for the franchisor
While opening a franchise has many advantages for franchisors, there are also some drawbacks to take into account.
1. Loss of complete brand control
When a business owner launches a standalone operation, they retain exclusive control over their brand and all corporate decisions.
When a franchisor permits a franchisee to launch a business under their brand, they take some control over their restaurant business branding (in reality, they sell it). Although the franchise agreement should include strict requirements and guidelines to direct the franchisee’s choices, your franchisees won’t be exact replicas of you. Your brand may suffer as a result of how they think and behave differently.
2. Increased potential for legal disputes
You expose yourself to the possibility of legal conflicts if you enter into a close business arrangement with another person. Although the likelihood of legal issues between the franchisor and franchisees should be greatly reduced by a carefully drafted and lawyer-approved franchise agreement, these conflicts are nevertheless conceivable.
Any legal disagreements that must be settled through mediation or the legal system can be expensive in terms of both time and money, which detracts from the franchise’s profitability.
3. Initial investment
While there is much discussion about the initial investment a franchisee must make, it is important to remember that the franchisor also incurs an upfront cost.
There is a startup cost to get the firm up and running when a franchisor establishes a franchise. A franchisor is required to ensure that the franchise agreement is well-written and has been reviewed by an attorney with knowledge of franchise law. To help you with this procedure, you might also employ a franchise consultant. For a franchise to get off the ground, the franchisor must first invest time and money.
4. Federal and state regulation
Although not wholly a disadvantage, dealing with the federal rules established for franchises by the Federal Trade Commission can be a hassle for franchisors. Although these rules guarantee that franchises run fairly, they also demand time and effort from the franchisors to comply with all of them.
While you are not required to file your agreement with the federal government, you are required to do so with some states, and you must ensure that your agreement complies with each state’s legal requirements. With expert advice, this can be a time-consuming process that is made simpler.
The final word
Starting a franchise business includes advantages and disadvantages, just like most other business decisions. Franchisor and franchisee relationships are not always created equal. Before selecting the franchise that is best for you, it is crucial to conduct a study and comprehend all the benefits and drawbacks of franchising, whether you are a franchisee or the franchisor.
You can connect with sparkle★minds if you are interested in franchising your business. Over 500 clients of sparkle★minds have franchised their businesses and have achieved great business results, so why are you waiting? Get in touch today with us!
