Hello guys! I am planning to start a restaurant business. My wife and I cooks well and so it suits us well. What concerns me is that I am confused about whether I should buy a franchise restaurant or should start our own. We have an opportunity to buy a franchise and we are considering it. We discussed with a franchise lawyer to know about the possibilities. Still we are not able to reach a final decision. I hope someone here could give some advice and help me make a final decision.
Ive always heard that having a franchise is like buying a full time job. If you buy a franchise you’re generally going to have to buy their ingredients from their suppliers and cook their recipes. i would guess it’s more fun to make your own menu and source your own ingredients.
I agree with @TJ that I’ve heard it is like buying yourself a job. I know someone who recently had a very bad experience and lost a ton of money. The biggest key is competition… if you do go that route, make sure that you can claim a certain radius so that other franchises can’t just pop up a block from you and take half your customer base.
Franchise was more than a full time job for 3-4 families; we purchased a high end pizza place that delivered… the staff size alone required to run 6-7 days a week would work anyone to death. 30, 40, 50 part time people that cycle in and out.
Outside of that the cost to start was enormous (100’s of thousands of dollars) - we started off strong, in a great market - but eventually other restaurants (pizza places) found this area interesting as well and we slowly lost enough cash flow that we had to sell. Expenses to own a place of dining is very high as well… We needed to gross 35,000-45,000/mo to keep everything going… heck we even paid over 1500/mo just to clean our rags that we wiped the counters with.
To me, a brick and mortar business is just too risky if it is your primary income… you’re bound to an area, a market, changes around you etc.
the benefit of an established franchise is the ‘system’ has been figured out, the advertising is in place, the name is familiar… but you will pay for that through the costs of startup and ongoing cost of % off the top of revenue (gross).
we ended up selling and lost money - I think we all should own businesses and employ people, but in this area - I completely failed
I would almost want to own the building I’m in, and have a few other businesses around me that pay leases to distribute the risk (kinda like a real-estate person would have a mother in law suite, or rental property on their land to off-set costs)
take your time, do the research and keep that money working for you.
I’ve done some passing research on franchises, here are just a few interesting points I’ll share:
The old phrase “when’s the last time you saw a McDonald’s go out of business” is naive. Franchises go out of business all the time, they just get sold to a new franchisee. For example, it’s possible one Subway has actually failed several times, but just driving by and seeing the sign lit up everyday, you would assume the place is running smoothly.
In general, beware of the franchises that charge huge franchise fees. They all have start up costs, but some unscrupulous ones will charge you an arm and a leg even if most of their locations fail, because they’re just in the business of collecting franchise fees. Contrast this to say, Chick-Fil-A, which is one of the more reputable franchises, who only have a $5,000 franchise fee and provides tons of support to their franchisees.
The earlier poster’s point about making sure you can claim a radius is a good one. I’ve heard Subway is notorious for selling a franchise to just about any willing buyer and over-saturating its own market.
I would look into buying a building for your new business, possibly even one you can live above. We have several businesses and currently are trying to sell 2 of them, the hardest part is selling them without a building. Banks don’t like lending to buyers without the building as asset, they don’t believe in business’ like they use to.
Be careful of time limits on that exclusivity claim also.
Once that period has expired the brand is well within its rights to establish a rival outlet right next door to your existing one.
Unfortunately that happens quite often to franchises located on the edge of towns, where the brand may establish a newer outlet on or closer to the highway into/out of town. This siphons off much of the passing trade, turning the original franchise into the much lower turnover locals haunt.