Ready to open your own restaurant? Franchising is the perfect way to jumpstart your entrepreneurial dreams. The right franchise comes with readymade products, systems, and customers—plus a lot of support from your franchisor.
Creating your own restaurant comes with the growing pains of building a new brand from scratch. A restaurant franchise requires an initial investment, but it can make you profitable more quickly than a new restaurant brand if done right.
But even if you have experience in the restaurant business, opening a new franchise can feel confusing, especially in such a cutthroat industry. Before signing your franchise agreement, understand how the franchise model works and the pros and cons of franchise restaurants.
What Type of Restaurant Franchise Should I Open?
A franchise restaurant is different than a typical restaurant. Franchise owners are allowed to use an existing brand’s trademark, products, services, processes, and more. In exchange, you’re on the hook for setup fees as well as ongoing franchising fees.
But you need to do your homework. First of all, not all national restaurant chains allow franchises. For example, Starbucks is a huge brand, but all stores are owned by Starbucks HQ. You need to set your sights on a restaurant chain that offers franchises.
From there, decide what type of restaurant you want to operate. This means looking at factors like:
- Competition: Who are you competing against locally? If there are 10 McDonald’s in your area, you might be better off with a franchise like Chili’s instead.
- Consumer demographics: What is the income level in your area? If you’re in a lower-income area, you’ll probably need to create a fast-food franchise, which is more affordable for diners.
- Expertise: There’s a big difference between fast food and a sit-down restaurant. If you have expertise in a fast-food environment, start there first. Now isn’t the time to jump into a foreign business model.
Based on these factors, you need to choose between fast-food, fast-casual, or a sit-down franchise.
How Do I Start A Restaurant Franchise?
When it’s time to open a franchise restaurant, you need experience in food service or the restaurant industry. Franchisors must approve their franchisees, and it’s unlikely that they will approve your application if you don’t have the right qualifications.
If you have industry experience and want to take things to the next level, follow these five steps to start a restaurant franchise.
1 – Know the brand
If you’re going to franchise for Subway, make sure you’re very familiar with the restaurant. Become a patron of the franchise you’re considering so you can spot the right franchise opportunities. That means:
- Sitting in the dining area. How are the employees acting?
- Eating the food. Is the quality consistent?
- Watching the customers. Are people happy with the food, or are they complaining? Is there a long wait time?
- Talking to the franchisee. How many hours a week do they work? What are their margins like?
You should also check out the franchise online. Look for any Better Business Bureau complaints, lawsuits, and negative customer reviews. You need an intimate understanding of the franchise before becoming a franchisee yourself.
2 – Apply to a franchise
If you feel confident about a franchise and want a location of your own, it’s time to apply for your franchise! You can find this information on a franchisor’s website under “Franchising Information.”
In addition to the application, the franchisor should also supply brochures, videos, testimonials, and other resources to help you.
Fill out the application, and be sure to highlight your experience in the industry, education, and preferences (like franchise location). When you apply, you’ll receive the Franchise Disclosure Document, a legally mandated document that gives you information on:
- Company history
- Marketing programs
- Franchise costs, like royalties and fees
From here, the franchisor will review your application. In the meantime, you should review the FDD and make sure this is the right move for you.
3 – Sign a franchise agreement
Once the franchisor approves your application, they’ll send you a franchise agreement to sign. We highly recommend hiring a lawyer to go over the franchise agreement before you sign. This document details the fees and rules for franchisees, so understand what you’re signing first. A lawyer will make sure you’re protecting your interests.
4 – Secure funding
Once you sign on the dotted line, you’ll need to pay for the franchise. Sometimes a franchisor will help you fund the franchise, covering expenses like construction or equipment. However, most of the time, you’ll be on the hook for these expenses.
As a new franchisee, you need to secure funding. Since the average cost of a franchise is in the $100,000 – $1 million range, you’ll likely need financing for real estate, equipment, and more. The Small Business Association (SBA) does offer loans to franchisees for these purposes. If you don’t qualify for SBA, other options include bank loans or financing through your franchisor.
5 – Open the restaurant
After signing your franchise agreement and securing financing, it’s time to open your franchise! To do this, you’ll need to consider things like:
- Hiring and training staff.
- Purchasing and installing equipment.
- Securing vendors and food deliveries.
- Furnishings and decor.
- Advertising the restaurant.
But don’t worry. If this feels overwhelming, you can always lean on your franchisor for support. Their success depends on your success, so don’t be afraid to ask for help.
How Long Does it Take to Open a Restaurant Franchise?
If franchising a restaurant sounds like a lot of work, that’s because it is! But opening your own restaurant from scratch is 10X more difficult.
Keep in mind that it will take several months to do the franchising process from start to finish. On average, it takes 6 – 12 months to open a restaurant franchise. The exact amount of time varies based on factors like:
- Signing legal paperwork and negotiating.
- Securing financing.
- Buying real estate and construction. It will take more time if you have to construct a new building.
You can expect the franchise purchase itself to take 3-4 months. Then you’ll need 2-6 months to get the restaurant ready for customers.
How Much Does it Cost to Open a Franchise Restaurant?
A restaurant franchise can cost anywhere from $10,000 to $2 million. With such a vast range, it’s hard to predict precisely how much you’ll pay for a franchise. That’s because franchise restaurants are so plentiful; every brand has unique ways of operating, and their franchise agreements differ significantly.
Of course, financing can be a significant barrier to your franchise dreams. You’ll mostly pay the franchise fees upfront to start, but the franchisor will also charge ongoing fees, like an annual franchise fee and a percentage of your monthly sales.
The best way to find a franchise that fits your budget is to research their franchising requirements. Here’s how much you can expect to pay with these popular franchises:
As you can see, the cost to franchise a restaurant depends on the brand.
Keep in mind that there’s a difference between net worth and your startup costs. Some franchises require a certain amount of net worth (and liquid assets) because it proves your ability to fund the franchise. For example, you need a net worth of $7.5 million to qualify for Panera Bread franchising, but it doesn’t cost $7.5 million to open the franchise.
What is the Most Profitable Restaurant Franchise?
You’re starting a franchise to realize your dreams of becoming an entrepreneur, but you’re also doing it to earn a living! In an industry with razor-thin profit margins, you need to be as profitable as possible. That means choosing the best franchises for your pocketbook.
Chick-Fil-A is, by far, the most profitable restaurant franchise in the United States. It earns $4 million per store, per year on average. With a low startup investment of $10,000, Chick-Fil-A tacks more monthly fees and takes a higher percentage of your monthly earnings. But despite these additional fees, Chick-Fil-A franchisees are still very profitable.
If you aren’t approved as a Chick-Fil-A franchisee, Taco Bell is the second most profitable franchise, earning $1.5 million per store per year on average.
What are the Advantages of Opening a Franchise Restaurant?
Franchising isn’t right for everyone, but it does have many benefits for people with restaurant experience. Franchise restaurants are beneficial because:
- They’re instantly recognizable: It’s easier to overcome the hurdles of educating your market when you go with a franchise. Everyone knows what to expect from McDonald’s; when you partner with a well-known brand, it’s much easier to get diners in the door.
- You won’t compete against the franchise: Franchisors take great care assigning regions and territories so that you won’t compete with other franchisees.
- It’s easier to predict performance: Franchisors provide years of historical data on expenses, ROI, and restaurant performance. You can sleep better at night knowing your franchise business has a proven track record.
What are the Risks of Opening a Franchise Restaurant?
Franchising isn’t risk-free. It does come with downsides like:
- Costs: Although restaurants will always require an initial investment to get started, franchising fees can be expensive. You’re responsible for one-time startup fees as well as ongoing payments to your franchisor.
- Restrictions: Both you and the franchisor have to follow strict rules according to the franchise agreement. But these stringent rules can reduce innovation, freedom, or creativity. You can also risk losing your franchise if you don’t follow these rules to the tee.
- Reputation risks: Remember the Subway Jared fiasco? Even if your franchise location hasn’t done anything wrong, you risk paying for the consequences if HQ makes a PR misstep.
The key is to understand your risk tolerance, experience in the restaurant industry and forge a strong relationship with your franchisor. If franchising isn’t for you, remember that you can always create your own restaurant brand from scratch, too.
If you have dreams of owning your own restaurant, franchising is the best way to make your dreams come true quickly. Franchise restaurants come with a proven model for easier selling. If you’re considering a second career, a franchise restaurant might be right for you.
Of course, it’s essential to understand the process before you invest in a franchise. Know how to start a franchise, how much it costs, and the pros and cons of doing so. If the benefits outweigh the risks, it’s time to open your restaurant franchise.