Investing in a franchised restaurant has a lot of potential; you may break even and generate income in just a few years or even sooner. However, this doesn’t happen to everyone. Certain factors need to coalesce for you to succeed.
There are things you can control and things you can’t; focus on the former to improve your chances of success. Experts on franchising cite the following things to consider when choosing a restaurant franchise.
Check Out the Neighborhood
One of the first things to consider when choosing a restaurant is its location. This can make or break your business within the first few years. Assess the foot traffic of the places on your shortlist. Other than the number of people coming and going, you must also know their behavior and preferences.
You might be selling something they are not willing to buy – factor in the potential developments in the neighborhood in making your decision. A location might be quiet at first, but because of upcoming projects, the area might see a rise in a different demographic that has various tastes, needs and wants.
Understand the Franchise Costs
One of the most significant expenses you’ll incur is the franchise cost. There are one-time costs some of these include:
- Real Estate Lease – this is the amount you have to pay for leasing land where you’ll build the franchise. In some cases, the franchisor requires franchisees to purchase the land instead of just leasing it. Look into this before making a decision.
- Franchise Fee – this is the fee you’ll pay for purchasing the restaurant under your chosen franchise and using their name.
- Cost of Equipment – franchises already have a process they want franchisees to implement. This comes with equipment you need to invest in when you join the franchise.
- Training Costs – other than equipment costs, you’ll also have to pay for training. This may cover lodging, lectures, process implementation and training of the staff you’ll hire.
Franchises may also require ongoing costs which may include:
- Royalties – franchises charge a percentage of gross sales as their royalty fee.
- Fees for Advertisement – some franchises ask their franchisees to pay for regional or even national marketing.
- Expenses for Operations – since franchises have systems in place, you’ll have to include the salaries and operational costs you’ll incur on a regular basis.
These are just some of the finances you will have to consider when making a decision whether to franchise or not.
Assess Your Finances
Franchises already have a name and system in place; all you need to do is follow the guidelines and implement the process. This convenience comes with a hefty price tag. Assess your current and prospective financial situation to determine if you can withstand the initial expenses and wait for your return on investment.
Learn More about Your Target Market
A franchise may have the name recall, but it is still up to you to convince your intended audience to choose you. Understand the target market of the neighborhood you are eyeing. Learn about their habits and impulses, and these will provide you with an advantage over the competition.
These are some of the things to consider when deciding on whether to invest in a franchise or not. Factor these in because it will cost a considerable chunk of your savings.