As you run and operate a successful restaurant, you will soon have this ambition that that most restaurant businesses seek to fulfill: franchise your own business.
A lot of hospitality businesses expand into multi-outlet operations some through franchising, some through multi-branching, and others through a mix of franchised and self-operated outlets. At the end of the day, you will become a franchisor or multi-chain business owner.
Like many in the market, a number of good restaurants failed to accomplish their mission. Some went bankrupt and some closed down their outlets to later get back to a one-outlet operation as they were before the expansion. I will not go through the brands that failed during the last decade, but I will recommend a mature path to success.
So how do you know when it's the right time to franchise?
First, allow me to give you a quick glance about the differences of branching. Franchising is when the original owner of the brand (called franchisor) authorizes or grants another person or group of people (called franchisee) the right to open, manage, and operate a similar business of the same brand against an agreement. Branching is when the founder or owner of the entity opens sub-branches or outlets under the same entity operated and managed by them.
To Franchise your brand or concept is not as easy as many entrepreneurs think; it requires a lot of hard work, imposes stress, and needs financing. Hence, once you successfully franchise your restaurant, the returns can get very promising.
Why would anyone consider franchising?
- Faster expansion
- Less investment and financing
- Minimized risks on the franchisor
- Greater brand awareness
- Higher revenues
The setbacks of failing in franchising or multi branching is: less market share, lower customer retention, and thus less confidence in the brand.
So what are the 8 must-have requirements to franchise your hospitality business?
- Don't franchise your business unless you have shown success records for no less than 2 years and these numbers should be justified in your financial statements.
- You need to run at least 2 to 3 outlets under your direct management at different locations to review and fine-tune all possible failure-causing matters due to locations’ unique characteristics, quality consistency, and other issues related to cost efficiency.
- You should have documented at least 2/3 of the business' main SOPs (Standard Operation Procedure) and created all forms and checklists to maintain your brand promise throughout your outlets.
- You have a non-temporary trend-driven concept with low Gross Profit margins on 50% of your menu.
- You have built an effective measuring and portioning of the top selling menu items' ingredients and sub recipes.
- You have a good POS and ERP software that anticipates the growth and the control of your outlets.
- You have built a good staff training structure and guidelines.
- You have a skilled management team aligned with the company's vision, mission, and values.
If your answers to the above points were 'Yes', then you can start considering franchising. 90% of franchisees have 0% knowledge in the franchised business. It is your role to provide them with the know-how on how to operate, run, manage a successful franchise of your brand, and build an effective quality control system that evaluates and maintains the core values of your company.
During the early stages of your first successful store, you may get approached by friends, customers, or investors to open your next franchised outlet. My advice to you: don't get too excited to accept franchise applicants before building a strong system that would accompany your growth! Sticking to your plan and timeline makes your brand more valuable and gives the potential franchisees more confidence in your entrepreneurship skills. Remember that fast expansion with no grounded experience is a killer.