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Should You Franchise Your Restaurant?

If you have already established your restaurant and feel that you are ready for the next big step, you can start considering the possibility of franchising your business.

Prestigious London-based professional services firm PricewaterhouseCoopers once reported that restaurants are major players of U.S. private-sector industry groups that actively franchise their businesses. In 2010, the number of franchise establishments in the U.S. has grown to 765, 723 units which generated a total economic output of more than $700 billion and provided 7.6 million jobs to people across the country.

Restaurateurs generally decide to franchise their business for one of three reasons: the need for additional capital, lack of time to grow the business, or the need for people to handle the restaurant.

Since the franchisee is the one who is expected to provide the additional capital needed to grow your business, your investment gets limited to the processing of your franchise documentation and your franchise recruiting costs. Your risk is also reduced, now that someone else will handle the basic operations of each of your location. Time will also cease to be a problem, since your potential franchisees are the ones who would look for your additional locations, negotiate for the lease, hire the architect, plan with the contractors, recruit the staff, purchase the equipments, plan the menus in elegant menu folders and do the inventory. And lastly, you are in effect passing the responsibility of looking for the right restaurant managers to your franchisee–they themselves will become your able manager, knowing that they have a stake in the business.

So how would you know if your business is now ready to be franchised? There are generally three basic criteria: “clone-ability,” salability and ROI.

First, you need to have a system in place in your restaurant, making it easy to clone or duplicate. Your menus in quality menu folders, recipes, price positioning, marketing strategies should have a methodical structure and easy teachability that would allow potential franchisees to replicate your business.

Next comes the salability aspect of your business: Is it credible? Does it have its own unique qualities? Is it professionally designed? Does it have a “sizzle” factor? If you often receive unsolicited inquiries from potential franchisees, that means they are intrigued with your business and you do have that “sizzle” factor that catches the interest of the people around you.

And then, of course, the reason why your franchisees would go into business: the possible returns. Your restaurant should be able to provide a substantial return both for yourself and your franchisees—meaning, you would have to adjust your franchisees’ probable returns by subtracting a royalty.

If your prospective franchisees are convinced that yours is a good restaurant business, easy to replicate and can allow them to generate a 15% ROI on a mature franchise, then you can rightly say that yes, you are ready to expand your restaurant business and is indeed ready for franchising.