Because of the recent economic turmoil, fast casual restaurants have become a very profitable investment. The reason is that, although people do not spend as much money on food, they still want to eat something of great quality without having to pay larger restaurant prices and tips.
There are some things that you should know before franchising with the fast casual restaurant chain. In this article I will share tips, strategies, and other information that will help you to make a good decision before signing any franchise agreement.
What Is Your Strategy?
The most important thing to have nailed down before you sign up to any franchise, is to know what your strategy is. Are you looking to start a single store, or are you a multi-unit investor that is looking to build an empire?
While this may not seem like a big deal, you have to realize that not all franchises are created equal. Some fast casual chains are geared toward the single store owner. As soon as you try to scale, the support system that has been developed by the franchisor may not be able to scale along with you – and that may be a huge problem.
Likewise, some franchisor’s are geared toward helping multi-unit franchisees build three or more stores over the life of their agreement. When a single store owner comes into the franchise family, the franchisor may not put as much priority on the franchisee of the single store.
So, before you start anything make sure that you know what your long-term plan is for this investment. Of course, if you are looking to go the multi-unit route you have to keep in mind that you are going to pay more in capital for your initial investment and will need a significant amount of net worth.
Although you are looking for a fast casual restaurant franchise, you want to make sure that the franchise concept is viable. In other words, you want to ensure that what you are buying into isn’t just a fad that will last only a few years.
Good fast casual concepts are based around ideas and tastes that transcend fashion. For example, the popular craze right now is organic foods. Now, organic products themselves, while they may be healthier, may not carry with them long-term viability. Just as the fashion is starting to trend towards healthier foods, that trend can just as easily move toward unhealthier foods in the future. However, food that tastes great will always win in the long run. That being said, when you’re looking for concepts don’t focus on things I can change as time goes by, focus on the quality of the product and the ease of operations in the franchise.
Ease of Operations
In order to keep costs down and have a profit margin that allows you to build wealth, the franchisee choose needs to have a good operations model. Too often, many brands at a loss to their menu, lose focus on the product, and make it hard to keep variable costs low due to inefficient operations.
If you look at some of the leading fast casual restaurants, their menus are very thin but to the quality of the product is very high. They are able to focus all of their efforts on delivering the best burgers, tacos, etc. This, in turn, allows the franchisee to manage costs effectively and to maintain a profit margin that makes it worth expanding their portfolio with further franchise opportunities. The more complex the franchise, the harder it will be to get a return on your investment.
Before you sign any documentation, make sure that you not only visit a store that you are interested in, but have the franchisor give you a tour of the operations. Asking the general manager questions about the operations of the store is also going to be extremely beneficial.
Initial Capital Investment
Restaurants, as opposed to other franchises, typically have a high initial investment. A large investment in the beginning is especially true if you are going to have multiple stores in the future. There are a couple of things to consider in regards to cost to include the franchise fee, liquid capital necessary, and network.
Most franchisors require you to pay a fee in order to become a franchisee. The typical fee can be anywhere from $10,000-$60,000 depending on the franchise. This fee is per unit, which means that for every store that you open under the franchisor you will need to pay the franchise fee. Sometimes this fee is negotiable, but often it’s not. That being said, if you are going to sign on for multiple stores you will have to multiply the franchise fee by the number of stores you wish to open.
Another thing to consider is liquid capital. The typical fast casual franchise is going to requirethe franchisee to have anywhere between $50,000-$300,000 of liquid capital to invest into the store. This, along with net worth, will help the franchisee to secure the loans necessary for store buildout, and to have a cushion of cash flow for operations in the store itself. Often, when you see that a franchise requires a higher amount of liquid capital, is because they are looking primarily for multi-unit franchisees.
Lastly, franchisors want you to have around $200,000-$1 million net worth. This, just as the liquid capital, will help you to secure the loans necessary for the store to be successful, and also ensures that you have the assets necessary to back the franchise financially.
Don’t Stray from the Model
When you finally sign the papers and are part of a franchise, don’t stray from the model. The reason why most franchisees fail is because they start changing the business model that was given to them by the franchisor.
Yes, it is exciting to own your own business, but the reason you join a franchise is so that you don’t have to start from scratch. The business model, marketing plan, and support structure is a proven way for your business to succeed. Far too often new franchisees become enamored with ideas on how to improve the system. Typically, the “improvement” becomes detrimental to operations.
For the first one to two years ensure that you follow the franchise model. Once you are comfortable and understand the reasoning behind everything that goes on in your store, then you can start innovating and suggesting improvements to the franchisor.
Owning a fast casual franchise is a great way to start a business without having to figure out the business model. However, as shown in this article there are a lot of things financially, operationally, and psychologically that you need to consider before jumping in.