How to Franchise a Restaurant: 5 Key Steps

The Small Business Administration found that nearly 17% of franchises failed between 1991 and 2010. Are you confident that you know how to franchise a restaurant?

Building a successful restaurant takes business savvy, sweat equity, and a dedication to customer service. Diners must love the food, employees, and atmosphere. In other words, the restaurant needs to be unique and have a particular “wow factor” that builds brand loyalty.

Unfortunately, many amazing restaurants in the world are hard to find. Well, you might be able to find their location online, but they could be located in another part of the world. And once you finally plan to visit the restaurant, you might find they have a long waiting list because of their popularity.

Luckily, franchising makes it possible for diners to get this one-of-a-kind restaurant experience in any city. No matter if a customer visits a London or Hong Kong franchise, they can expect the same quality of service and food.

Why start a restaurant franchise?

The restaurant industry is growing, and it is no surprise why. Many people enjoy spending time with others while dining on tasty food. Also, nearly half of American adults view dining out as an essential part of their lives, and 64% of adults eat out at least once per week.

Restaurants must keep expanding to satisfy this growing demand. Creating a chain of restaurants is one way to keep up with this growth. Owners will open a second or third location after seeing success at their first restaurant, often building these establishments within the same metropolitan area as the first location.

While the chain model is excellent at satisfying demand within a specific area, it can take a long time to tap into new markets. Some chains, such as In-N-Out Burger, do not plan on entering certain markets altogether.

While some restaurateurs do not mind slow growth and limited reach, others want to establish a large presence. For these entrepreneurs, franchising is a suitable choice. Investors from anywhere in the world can purchase a franchise location and provide the same experience that diners get at the original restaurant. The franchiser does not own or operate the new franchise, but they do collect royalties and maintain control of the brand.

With each new franchisee, the company and potential profits grow. That said, this explanation is an oversimplification. Running a business can be very stressful if an entrepreneur does not know how to franchise a restaurant properly. There are also many reasons why franchises fail, so you want to be sure you start on the right foot.

How to franchise a restaurant

Below are some general steps you will take when you start your franchise. As you read over each point, consider your current situation, the expected costs, and your goals to determine if franchising is the best option.

1. Be successful

People invest in a franchise because it is a turnkey operation. New franchisees expect to receive successful business out of the box. Your restaurant needs to be this model.

In the past, a business owner could get creative with numbers and show high profitability to mislead investors. This had obvious harmful effects. Now, the Federal Trade Commission requires three years of audited financials for anyone seeking to start a franchise. These reports are part of the Franchise Disclosure Document all franchisers must complete.

Aside from the legal requirement to include these documents, you want to show franchisees can expect similar outcomes. If your original restaurant is in the heart of a busy city, franchise locations may not do well in the average shopping center or as a standalone business that lacks the traffic seen in the city. Likewise, if something unique that cannot be replicated makes your original restaurant successful, you want to account for this to clear up expectations.

We are not saying that the examples above cannot work as franchises. Rather, investors need to have accurate profitability indicators.

2. Have your legal affairs in order

Your restaurant is one-a-kind, so make sure you treat it that way. Without proper documentation, you can end up in dispute or lose the rights to certain aspects of your business.

Speaking with a restaurant franchise consultant is the first step in this process. Their industry knowledge will help throughout starting your franchise, and they are invaluable when it comes to the legal issues. You will also want an attorney to prepare all documents in this process.

Vital legal matters to address when franchising a restaurant include:

• Intellectual Property: What branding do you use to stand out from the crowd? You likely have logos, fonts, and other creative works that are unique to your business. Make sure you trademark your branding to prevent others from using it
• Contracts: Each franchisee will adhere to a contract regarding operating their restaurant. These covenants must account for all aspects of the business to ensure they meet your standards and do not violate terms of the contract
• Regulatory practices: How will you comply with labor laws across the United States? Do you use any procedures or products that may not meet a state’s standards?

3. Be prepared to change duties

As you make the switch from the restaurant owner to the franchiser, you will assume new responsibilities. While you certainly can still run your business normally at the start of your new franchise, you may eventually need to make changes to ensure your brand grows successfully.

Your franchise cannot succeed without your leadership. New franchisees will need to learn your secrets to success and understand the brand at a deep level. You can document all of this in onboarding paperwork, but your individual guidance will be necessary to ensure smooth operation as your franchise first starts.

You will likely need to spend more time:

• Pitching your franchise to potential partners
• Monitoring the performance of each restaurant
• Analyzing industry trends since small changes in supply or consumer habits can affect all locations

You will likely spend less time:

• Hiring and training new staff
• Speaking with customers and resolving conflicts
• Taking stock and ordering new inventory

4. Refine your business model

A franchise comes ready to go out of the box — that is one of its most appealing qualities. You will need to put in the effort to account for all aspects of your business before starting new locations.

Let’s review some of the areas you will want to review in your franchise business model.

Marketing

Your brand needs a centralized voice, which is why all marketing materials, from large signs to handout flyers, will come from you. Without this, customers will receive inconsistent messaging, and their experience will vary wildly at each location.

Social media and online interaction are a major component of your brand’s voice. As the franchiser, you will need to protect your brand from being misrepresented. It only takes one bad actor or even a minor error to ruin how customers view your brand.

But at the same time, you will need to empower your franchisees so that they can handle online concerns specific to their restaurant. Your franchise business model needs to include tactics and community management.

How will franchisees handle negative feedback, complaints, and image reproductions rights? You will want to create a social media policy that outlines what franchisees can do online and how they should respond to specific situations.

Inventory

Your meals should taste the same at all locations, so each restaurant needs to have near-identical inventory. Try your best to use the same suppliers for all locations, especially when it comes to spices, meats, and produce.

Franchisees are responsible for taking inventory, but you will need to analyze their reports. With powerful franchise management software, you will get an up-to-date, accurate count at all locations. This big picture data will help you determine which items are selling the most and which are lingering on shelves. More importantly, you can monitor the rising cost of goods to see when you need to raise prices.

A POS System for franchises

Determining what point of sale system your restaurants use is significant. If you’re coming from an individual restaurant, you might have used a POS with local storage, or even a cash register. For a franchise, these items won’t cut it.

You’ll need a cloud-based POS that you can access remotely. Without one, franchisees could underestimate their earnings to pay you less in royalties. The only way to audit their earnings would be to check their local server, which is not practical. A modern POS, like Epos Now’s complete solution, eliminates this problem by holding data from all locations online.

Additionally, you will want a restaurant POS that can track individual ingredients for the most accurate reporting. For example, a sandwich shop will want a POS that can track specific servings of items that are hard to measure, like pickles or condiments.

These items can be difficult to track since they are parts of a whole, but the POS will divide the total size by the service size. If a bottle of ketchup contains 80 ounces and each serving is 1.5 ounces, the system will calculate the remaining ounces to know how many servings are left.

You will also want to look for a system that supports handheld devices for table-side service. A server can send these orders to the kitchen while chatting with guests. The cooks will see the meals on their kitchen display system, eliminating the need for paper slips and making the process more efficient.

Your POS should also come with features to improve running a restaurant. Most notably, you want a system that supports:

• Multiple payment options
• Accountancy integrations
• Customer loyalty programs
• Creating promotional offers
• Integrating with food delivery apps

Training

Your restaurant did not find success by chance. You put in the effort to make sure your staff provides customers with outstanding service. Ensuring all new stores follow the same model is vital when considering how to franchise a restaurant.

Your program needs to include:

• Headquarters training: Franchisees will need to visit your location to learn the basics. Most training programs will include classroom teaching to grasp company culture and history, operations, and reporting. It should also include hands-on training in a mock restaurant
• On-site training: Franchisees and their staff will need several weeks to prepare for daily operations. Experiential learning is crucial to prevent the franchisee from being overwhelmed after opening. On-site training should encourage the franchisee to respond to stressful situations until it becomes second nature
• Ongoing training: Training is never over, and you will need to review new procedures with franchisees from time to time. You will also want to empower the franchisee to train new employees

Standard Operating Procedure

Just as customers expect the same food at each location, they also expect the same ordering process and level of service. You must establish Standard Operating Procedures (SOP) for your restaurant to provide this consistent experience.

Standardization brings the following benefits:

• Effective management
• A reputable brand
• A higher valuation

What should your SOP include?

When looking at how to franchise a restaurant, you want to see what works at your location and package it in easily understood documents for franchisees. You likely already have guidelines for training, food preparation, and other crucial tasks. These documents will serve as the foundation of your SOP.

To start, you should observe all staff members to see what they do and interview each of them about their duties. You want to look for practices that are not documented but work very well. Often, an employee will teach others a better way to accomplish a task, and that standard stays with the company after that employee leaves. Collect and codify this type of legacy knowledge and teach it to new franchisees.

Aside from this, your SOP should include cover running a franchise location from start to finish. Typically, SOP breaks down into these three groups:

• Entry: All documentation regarding how to start a franchise restaurant, such as market research and the franchise agreement
• Operating: All manuals regarding cooking, training, financial management, and other aspects of running a restaurant
• Exit: Instructions to end a franchise agreement amicably

5. Hire a forward-thinking team

Franchising is a big task, and you should not try to do this alone. As your business grows, new challenges will arise that you will not have time to address. Even worse, you might be so busy handling certain tasks that other large issues go unnoticed.

From supply chain disruptions to lawsuits, many problems can threaten your franchise’s success. Hiring a management team and delegating responsibility will empower you to address critical issues proactively.

When looking to build your team, answer the following questions:

• Who will handle legal affairs?
• Who will handle payroll?
• Who will negotiate with suppliers?
• Who will be responsible for communication and PR?

It’s time to grow your business!

These are only a few topics to cover as you assess how to franchise a restaurant. Your best step is to speak with a franchise consultant and start making a list of things you need to get started.

As we mentioned above, your franchise will need robust restaurant software. Franchises and restaurants across the country use the Epos Now system. Businesses choose us for our intuitive interface, durable hardware, extensive app store, and powerful reporting features.

Speak with a sales consultant to see how Epos Now can help your new franchise grow!