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When & How To Franchise Your Restaurant (6 Steps & Their Cost)

When & How To Franchise Your Business

Franchising is an exciting time for a restaurant business. This expansion business model enables you to grow your brand and your sales without risking an upfront capital, which is undertaken by a franchisee. 

But when is a restaurant ready to expand? And what steps should you take to do it right?

In this article, we talk about the signs you should be looking for to start transforming your business into a franchise, and the steps you need to take to do it well.

Table Of Contents

  1. 5 Signs You’re Ready To Franchise Your Restaurant Business
  2. 6 Steps To Franchise A Restaurant Business, & Their Estimated Cost
  3. Develop A Franchise Business Plan
  4. The Importance Of Choosing The Right Back-Of-House Software
  5. Conclusion
  6. About Supy

1. 5 Signs You’re Ready To Franchise Your Restaurant Business

Your business is booming, customers keep coming through your doors, your recipes are a success, and you’ve streamlined your operations as much as you could, and you’re ready to expand. Franchising may have been on your mind for a while, and you’re ready to go. But is the timing right for your business? 

Franchising is about taking the main – if not all – aspects of your business, and asking business owners who’ve invested significantly in your franchise to apply them. The guidelines and rules you set in place need to be based on solid experience for you to lead with efficiency and credibility, while also ensuring that your franchisees will get started quickly and see a positive return on their investment. 

How ready you are can be estimated by taking a look at your numbers. If your sales are skyrocketing, your profits are increasing, and your operations are streamlined, this is a good sign, as the profitability and ROI of your business are metrics potential investors will ask about.

Aside from numbers, here are a few general rules and milestones you should have reached prior to expanding into a restaurant franchise: 

 

You’ve been in the game for a couple of years

Generally, it’s recommended that your business has at least 2 to 3 years of consistent growth and streamlined operations. By this time, you should be able to clearly explain how your business operates, who your customers are, and what processes need to be followed for optimal operations. You should have a list of suppliers you trust, have your costs under control, and your menu optimized for performance.

 

You have systems in place

From POS to inventory software, a set of proven systems is critical to have in your business to ensure the success of your franchise. It’s worth remembering that franchisees need to be in charge of running an operation that you have already tested and established, rather than build the operations themselves or find software that works. 

 

Your numbers are looking good

It goes without saying! You should consider franchising only when your numbers look good. If sales and profitability are going up, and if people are asking to buy a franchise from you, it may be a good time to consider opening a franchise. Potential franchisees are putting their own money in your business, afterall. They expect to make a compelling profit.

Did You Know ?

In the US specifically, such financial information is communicated via an FDD Item 19 Financial Performance Representation, which is a written statement given from a franchisor to a franchisee about the financial performance (actual or expected) of the franchised business.

 

You’ve built a strong brand amongst consumers

It is key for you to have built a restaurant brand that is recognizable and loved by customers. Restaurant franchisors must be excited at the idea that they’ll both contribute to the success of a brand that speaks to them and that people are generally excited about. If you’ve been gaining followers on social media, if your business name is mentioned in restaurant reviews, and if customers keep coming back, then you may be onto something.

 

You have the capital to turn your business into a franchise

Yes, franchising reduces the upfront capital you will need to invest in every new location, since the upfront cost is covered by the franchisee-to-be. However, the process of transforming your business into a franchise takes money. You can expect to invest anywhere from $20,000 to $80,000 to franchise your business. 

2. 6 Steps To Franchise A Restaurant Business, & Their Estimated Cost

Transforming your restaurant business into a franchise requires focus and commitment. From creating the legal entity to marketing your franchise business to investors, several steps need to be taken in order for you to enter your business into its next phase of growth.

Generally speaking though, you should expect to spend between $20,000 and $70,000 in legal fees, and about $15,000 to $110,000 in setting up the sales operation, depending on what you choose to invest in.

Before you begin with setting up your franchise business, it is important that you understand why an investor would work with you. Here are a couple of ideas that could help you standout:

Lowering the conditions of eligibility for investors.
Lowering the upfront capital required, in exchange for higher monthly fees.
Talk about the quality of support you provide to your franchisees.
If you already have opened several branches, talk about your increased experience and how streamlined your operations are.

And this is why Step 1 is about finding your value proposition.

Restaurant Franchising Costs

 

Step 1: Find Your Franchise’s Brand Positioning

There are plenty of franchises to choose from nowadays, and an investor will likely look into both the numbers, but also the value proposition of a franchisor. An investor needs to know what your restaurant franchise business will bring more to the table than a competitor, and such differentiation can take place in different forms. 

Such examples include : 

  • The number of franchises already operating.
  • The easier-to-meet conditions that an investor needs to meet in order to buy a franchise from you.
  • The franchise’s business model, which may include reduced upfront costs to get started. 

For example, The Halal Guys advertise the speed with which your application is processed, and how soon you could become a franchisee !

Restaurant Franchise supy The Halal Guys

Not only this, but they also advertise the kind of support you would get, and are clear with the type of conditions to be met, and the investment required.

Restaurant Franchise Business Supy the halal guys
Restaurant Franchise Business Supy the halal guys

This is an excellent way to build credibility, reassure an investor, and differentiate yourself. For the moment, simply make note of this before you start advertising it. 

Expected Costs: $0 to $5,000, depending on whether you’d like to do the work yourself or hire a marketing agency or consultant.

 

Step 2: Register your franchise, set up your Franchise Disclosure Document (FDD)

Although no clear costs could be attributed to the filing and registration fees, it must be taken into consideration. With registering a new business comes a series of new registrations you’ll need to pay for, such as trademarks, incorporation fees, filing fees, and more. The final price will depend on where you decide to incorporate your business, and will include attorney fees. 

The FDD is a mandatory legal document that covers the entire legal underpinnings for your franchise system. It includes the legal agreements between you and your franchisees and all relevant paperwork. Because it’s a legal document, it should be prepared by qualified lawyers. It is also recommended to be advised by your own legal team, if you have one, about the development structure of your business: will you be selling individual unit franchise opportunities or multi-unit development agreements, or both? What royalties will you be asking for, and under what conditions? These are some of the questions you will need to address and set into your agreement. 

This is a typical example of franchising conditions, from The Halal Guys: 

Restaurant Franchise Business Supy the halal guys

One thing to note is that you will likely need to create a new LLC entity in order to represent you as a franchisor. This is the entity that will be used to sell the rights for other franchisors to use your brand name and products. In the US, for example, you will need to create an LLC for your franchising business, to act as the franchisor. It is the franchising LLC that will be distributing the licenses to franchisees, and under which the FDD falls.

Lastly, the Financial Statement Preparation Document, which are audited financial statements, need to also be provided under the FDD. This is done by a licensed accountant, meaning you’ll need to take this into consideration for your costs. 

Expected Cost for Filing & Registration: from $1,000 to $5,000

Expected Cost for FDD & Financial Statement Preparation: from $18,000 to $48,000

 

Step 3: Create Your Franchise Investor Website

Do not underestimate the marketing effort that is required to convince potential investors. A badly written or designed page, with arguments that are not really convincing will cost you leads and deals. You need to educate and inform your prospective leads about your franchise, why you’re different, and what they can expect in terms of ROI and support. 

Hire a branding expert if required, or a salesman in charge of your franchise business, in order to write compelling copy,  face objections, and sell!

Tell your brand’s story, and reassure investors by mentioning what makes your franchise unique. Showcase maturity and credibility by talking about the key points that truly matter to them, such as pre-conditions, investments, fees, the onboarding process, and more. 

This is an example from the Halal Guys

Restaurant Franchise Business Supy the halal guys

 

Expected Costs : from $3,000 to $15,000, depending on how much support you need in terms of website set up, design, storytelling, and branding. 

 

Step 4: Develop your Restaurant Franchise Operations Manual

This is the ultimate, confidential document that covers all the guidelines related to the development and operations of a franchised branch. It combines your experience and expertise into a crucial document that streamlines the franchisee’s operations, but also sets the tone in terms of standards and rules that each franchisee should follow. 

Although confidential and shared with a franchisee only upon signing a franchising contract, the operations manual’s table of contents will be mentioned in the FDD. Although developing an operations manual may seem overwhelming at first, keep in mind that some beginner franchisors may start by developing their own and make it evolve over time. Others may choose to hire professionals to do the heavy lifting for them. Ultimately, it is up to you to ensure that your manual is updated on a regular basis to take into account the experiences you’ve learned from.

Here’s what’s included in a Restaurant Franchise Operations Manual : 

1. Brand & Team 

This is where you talk about the story of your brand, the values you stand for, and the people behind the brand. Talk about your customers and the reason they keep coming back. It can be the food, the service, the convenience, or the general experience! It is key to make sure the franchisee is proud to be part of your story, and a part of the “family”. 

2. Franchised Business Plan & Expectations

This provides guidelines as to the milestones a franchise will need to achieve in order to be ready for the grand opening. These include finding a location, getting started with construction, establishing relationships with suppliers, training, marketing… This will provide clarity as to what needs to be done, and what takes the priority during this period.

3. Legal

It goes without saying, but including a section that talks about the confidentiality of this manual is key. It is, after all, a representation of your company’s know how and experience. You may have processes and strategies that could benefit a competitor. It is key to protect your intellectual property. 

4. Operating Systems

This section explains the entire operations for the business to run smoothly. It includes the technology required, from point of sales systems to inventory systems, as well as approved suppliers, storage methods, specifications, guidelines, and more. 

5. Marketing 

Franchises have the right to lead their own promotions. This section covers the marketing rules that apply to a franchise, as well as guidelines and processes. The section includes a list of approved media, how tos, approved social channels, website, and more. 

A Restaurant Franchise Operations Manual is a comprehensive guide that helps a franchisee build and run their operations with efficiency and clarity. It’s a key document that not only helps you franchisees get going fast, but that also helps in building trust. This is why you should invest significant time in building it.

Expected cost: from $0 to $35,000

 

Step 5: Invest In Public Relations & Paid Advertising

Especially important if you’re a fresh franchise, spreading the word about you is key to getting traction in leads and deals. It is important to not only make yourself known, but to also build credibility amongst prospective franchisees. A PR agency will help you build the right message and push it to the right publications, for you to gain third party credibility. 

Part of getting the word out is also paid advertising. Although PR is more important at this stage, sponsoring ads could maximize the spread of your message. You will need to work with a designer and a performance marketer, either brought in-house or through an agency.

Expected Costs for PR : from $10,000 to $30,000

Expected Costs for paid advertising : from $0 to $25,000

 

Step 6: Join Franchise Events & Conferences

Meet your investors where they are! Attend conferences to not just meet potential investors, but to also gain insights into franchising tips and best practices.

Expected Costs : from $0 and $40,000, depending on the packages you choose.


3. Develop A Franchise Business Plan

It is key to create annual plans and to set yearly goals for your franchise business. Here’s how such a plan might look, as an overview: 

Year 1

  • Register your franchising business, name, trademarks, and FDD.
  • Define your franchising value proposition.
  • Build your branding
  • Build your website to appeal to investors.
  • Invest in PR and advertising

During the first year, you’ll get leads coming in, but you will have to carefully choose who you choose to work with. Make sure you select seasoned investors who aren’t launching their first ever franchise. Working with experienced professionals will add to the quality of the work and feedback you receive. It will also give your brand more credibility. 

Year 2 and 3

You now have a few franchises open and running. You’re bringing in additional sales, and you were able to pinpoint where your franchisees needed more support and training. Prospective investors attribute greater credibility to your business, and your website is generating leads. Your franchise sales business is also more mature, with a better structured team, and more streamlined processes.

Year 3

Now’s the time to put your growth on hyper speed! You’ve been working with franchisees for a couple of years now, and they’ve seen the results that your franchise delivers. Their testimonials are a serious added value for the credibility of your business. Their validation will increase the perceived value of your brand and business, and will play towards helping you get more prospective investors. 

Year 4

You can now focus on helping your process mature, and invest in more capital in what has helped your franchise differentiate itself from competitors, and invest in what your franchise lacks. You could look into expanding beyond the regional or national limits. 




4. The Importance Of Choosing The Right Back-Of-House Software

 

Choosing the right software is crucial for the success of your restaurant franchise business.

Here could be the consequences of choosing the wrong software:

  • Choose a software that is difficult to use, and employees will need training to get going, which delays activation and promotes disengagement.
  • Choose a software that doesn’t run smoothly, and employees will stop using it.
  • Choose a software that doesn’t provide accurate data, and you won’t be able to make decisions for you or your franchisees. 

In other words, choosing the wrong back-of-house software will cost you.

Here are a few features you should consider when choosing a restaurant inventory management software.


  • Ease of use

Opting for a software adapted to the modern expectations of consumers is key. It’s important to have a tool that is easy to use, and easily accessible from a mobile app. For example, the ability to register wastage accurately, as it happens, and from a phone, enables any employee to input this data on the spot. This enables top management to access accurate data, for them to identify and fix discrepancies. 

Choosing a restaurant inventory management software that is easy to use also enables a franchisee to get started with their operations sooner than later. Indeed, removing the need for training not only accelerates launch time, but also removes the risk that employees will stop using the tool. 

Ultimately, ease of use means high adoption and engagement rates, which in turn mean that management at all levels have access to clear, accurate, and up to date data. 

 

  • Centralisation 

Aggregating data across franchises for a franchisor to compare the performance of each is key. Often, these tasks are done manually, and a middleman is needed to capture, centralize, clean, and distribute this data in the form of reports. This not only takes a significant amount of time, but it also exposes the data to human errors, which then affects the quality and impact of decision-making. 

Opting for a restaurant inventory management software that enables you to aggregate data in clicks means decision makers are able to visualize data in clicks, not in days, and fix discrepancies now, not later. 


  • Clear Analytics

The ability to deliver data in the form of clear restaurant performance dashboards quickly is crucial for decision makers. Indeed, data has little value if it is not easily understood. By opting for a software with built-in restaurant performance dashboards, decision-makers of all kinds of data literacy levels will be able to understand reports on variance, stock movements, menu engineering, costs, and more, in clicks.

Built-In Dashboards

Access instant sales, inventory, and menu performance data across franchises

In summary, when looking into subscribing to a software, you must think of not only the scalability of the tool, but its usability too. The more easily it can be adopted by your team, the more likely it is to be used. The more helpful it is, the more likely its value will be perceived. Opt for a restaurant inventory management tool built to help you grow your franchising business.




5. Conclusion

Starting a restaurant franchise is an exciting next step to grow your restaurant business. It enables you to scale your operations without significant capital, and without the enormous effort it would take to open locations single handedly. However, a restaurant operator will still need to invest some capital into launching their franchise operations, with part of the cost going to legal fees, and a part of the cost going to marketing the business.

A restaurant operator can expect to spend between $30,000 and $180,000 to launch their franchise, depending on how aggressively they’d like to grow, and on whether or not they decide to seek external support or advisory. The investment is necessary not only to set up your restaurant franchise business, but to also brand it in a way that helps you stand-out from the myriad of franchises that already exist and are also going after potential investors. 

6. About Supy

Supy is the data-driven restaurant inventory management platform designed to help franchises cut costs,reduce waste, and maximize profitability. By covering all back of house operations, you are certain to run an efficient inventory management operation at scale. Putting a tool that is easy to use eliminates the need for training and maximizes the engagement with your employees. The ability to centralize data in a click enables a corporation to visualize the performance of each franchise, identify discrepancies, and fix them fast.  

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