Food Based Franchises: What to Know Before you Bite

Food Based Franchises: What to Know Before you Bite

Food based franchises are big business. The International Franchise Association notes that quick-service restaurants in particular contribute more to USA GDP than any other line of business. With that in mind, it makes sense that today’s commercial investors are not only purchasing offices but also takeaway outlets that are for sale, especially as smaller footprint outlets like counter shops or beverage bars require less in terms of real estate.

The format of a franchise is straightforward in that you can become a franchisor to sell a specific product or service which is already established with the franchisor’s trademark and operate according to their terms and conditions. In exchange for access to a brand name, marketing support, training and the vast network that a franchise provides, you will pay the franchisor ongoing fees and other royalty payments to operate under their model. You ‘ll also benefit from existing supplier-dealer relationships and contracts that can streamline your supply chain and save costs on logistics or time spent developing your own operating systems and processes.

Knowing what to look for in a franchise is also a key factor when deciding to buy into this business format. Tempting as it is to invest in a food product that you personally enjoy, there are other evaluations that should be prioritized over taste buds, at least on paper!

To investigate a franchisor’s history you’ll want to determine basic information such as their length of time in the industry, the failure rate of theirs franchises and how many franchises are currently held under that brand. From there, more in depth information such as their financial health like their credit rating and profitability is essential to know. Get a hold of projections and know how they’re calculated (based on franchisee or franchisor run outlets). Finally, knowing the management experience of the people at the top will also be a good indicator as to how well-run an operation is. Strong leaders don’t micro-manage, so although there will be guidelines and standards to adhere to, you’ll want a franchisor that provides support and is involved without making every tiny decision on your behalf. At the other extreme, you don’t want them to be absent either, especially when it comes to strategic direction of the overall brand and product creation to suit or shape existing and emerging markets.

Getting a set of professional eyes to look over the Franchise Disclosure Document and Franchise Agreement is advised as they will be able to translate what the terms and conditions will mean for you and your bottom line. Another step is to seek out and talk to existing franchisees and get their experience of the business. This is a good way to get an insight into how things work on the ground. You may wish to pay particular attention to things like product quality, sales peaks and troughs, how much support is provided and any personal feedback on the franchisor. Once you’ve completed all this you’re on your way to becoming a franchise owner!

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