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5 Questions to Ask Before Buying a Restaurant Franchise

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By Matt Kraustrunk

April 22, 2011

Purchasing your first restaurant franchise requires a great deal of planning. The strategic direction of the franchise weighs heavily on what industry you choose, where you are located and the franchise management. Here are a few great questions to ask before buying a franchise.

1. How does this business transfer to a franchise?
Determine how “brand” associated the industry is. For fast food restaurants, pre-branded companies like McDonald’s or Burger King give your customers insight in to what your franchise offers. If you are operating a fine dining restaurant, sometimes the franchise tag is hidden, because franchises are seen as lower quality restaurants. Determine how well your business plan will transfer to a franchise fee structure, and ultimately how customers will perceive your brand.

2. What are the key success factors?
What makes each franchise location successful? Is it the aggressive ownership style? Maybe this franchise requires individuals who do aggressive local networking, where you have goals in mind to keep marketing budgets modest. If the only successful locations are in urban areas, it doesn’t make sense to place your franchise in a shopping mall. Understanding the key success factors will enable you to better understand what sets apart the winners and losers within the franchise team. If you understand what makes the winners “win;” you will be two steps ahead of the competition before you even begin!

3. Are you ready to dedicate yourself?
Franchises aren’t necessarily a cakewalk; they require a good deal of commitment, research and planning. Before you even talk with franchise executives, make sure that you are ready to commit yourself to the business. Understand what your barriers to entry are and how you will overcome them. If you are currently working a 9-5 job and you plan on operating the business 5-12pm every night; realistically assess the situation and stop dreaming. If you are able to solidify your plans for the future, you will brace yourself and your family for success.

4. What are the franchise fees and fee structure?
Believe me, the last thing you want to be doing once you select a franchise, is operating below margin. Franchise fees differ greatly depending on which company you are looking to buy; however, make sure that any initial fees and annual fees don’t impact your business’ bottom line. Typically franchises have around a $30,000 franchise fee, a one time payment that will essentially get you the franchise name. The fee structure is what you need to be looking at carefully. Each franchise has a different royalty structure and make sure you account for these before scaling your operations. For example, some franchise owners will take 3% of revenue where others will take 7% of profit; some may even take a flat fee.

5. Are you willing to do business with the owners?
We all know a franchise is a long term investment, so it’s imperative that you are able to work with the franchise owners. If you are able to connect with the owners and talk openly you will get off on the right foot and set the stage for something greater. Use LinkedIn to check out the owner’s page to determine what background they come from. Do a bit of Google digging on other franchisees like yourself and contact them. Ask them how their communication has been with owners, if the owners listen to them, and how easy it is to work with them. Getting a good basis for how you will conduct business is crucial in the pre-planning stages.

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