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Should you franchise your Restaurant?

When opening a restaurant, you will be tempted of becoming a franchisee for a well-established franchise. However, becoming a franchisee is not always the best solution for you. This means that you must weigh up the advantages and disadvantages before making a decision. Here are a few of the advantages and disadvantages that you should consider when making this substantial decision.

Should you franchise your Restaurant?

Advantages

Established Name

One benefit of becoming a franchisee is that you will use the franchise’s name. This means that customers will know about your restaurants and will know that your food will be of a high quality and that they will like your food. This will lead to the customers recognising the name of your restaurant and will lead to them wanting to eat at your restaurant. This will increase the number of customers that you have which will lead to your restaurant being busy. This will lead to your sales rising and your profit margin rising. This proves that if you register under a well-known name e.g. Mcdonalds, more people will want to eat at your restaurant leading to you having a large customer base.

Financing

If you decide to open as a franchisee, you will be given financial support to open your restaurant. This will put less pressure on you to generate the funds to open the business and will allow you to save your money as emergency funds. This shows that you will not need as much money to start up as a franchisee as the franchise will cover most of the costs. Banks will be more likely to grant a loan to someone opening under a franchise’s name because they know that the restaurant will be guaranteed a certain number of sales due to the franchise being established. This means the bank will know that the franchisee will be able to pay back the loan and the business will not fail.

Training

If you operate under a franchise’s name, they will support you in running your restaurant which means that whenever you need help, they will be able to provide it for you. This will allow you to run your restaurant effectively which will have a positive impact on your sales and profit. The Franchise will pay for your employees to go on training courses. This will enable your employees to provide high quality customer service which will lead to your customers becoming loyal and repeat purchasing. This will increase your sales and will lead to your profit growing rapidly. This will also cut your costs as you will not have to pay for the training yourself. This will allow your profit margin to widen.

Disadvantages

High Employee Turnover

One disadvantage is that as a food franchise, you will require a large number of employees to ensure that the restaurant is running efficiently and to ensure the customer service is at a high standard at all times. This means that you will not be able to pay the employees a high wage as you will have to pay a substantial number of employees. This will lead to the employees becoming unsatisfied with their pay which will lead to them leaving their role in your restaurant. This will make it hard for your restaurant to keep good employees who are well trained. This will disrupt your working environment as you will have to continuously hire and train staff which will lead to your customer service decreasing. This could have a negative impact on your sales and profit.

Pricing

One disadvantage of becoming a franchisee is that the franchise will set your prices for you. This means that you will have no control over the amount that you charge customers for your products. This could impact your profit negatively as the prices may be low which means that you will have a low profit margin on each product. This means that you will have no emergency funds to deal with food wastage or theft. This could lead to your restaurant being in serious financial trouble.

Costs

Not everything is paid for when you open a franchise. This means that you still may have to invest a substantial amount of money into the restaurant. This shows that opening as a franchise will still require a lot of fundraising. Even when you have set up the restaurant, you will still have to pay royalty payments and marketing costs. This will lead to your costs increasing which will lead to you struggling to generate profit. This proves that even with an established name, your restaurant will still struggle to generate sales and profit when your restaurant is starting up.

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