Halle Clark

The 5 Biggest Mistakes Restaurants Make When Building a Franchising Model A large majority of small restaurant owners dream of the day they will join the world of franchisors. With the right circumstances, this can be the perfect move for your business, but there are a lot of possible mistakes to make along the way. Restaurant franchising can be a daunting space to enter without the right preparation. So, today you will learn the five most common mistakes made by restaurants during this transition. 1) Underestimating the Necessary Capital Insufficient funds is sadly a very prominent problem among new franchise owners. This is due to the initial underestimation of the necessary capital. According to Christian Faulconer, CEO of Franchise Foundry, “The cost of creating the franchise system and the cost of supporting new franchisees usually exceed royalty revenues and franchise fees in the beginning”. This means that a lot of the costs are unaccounted for, some including employee expenses and marketing efforts. One way to avoid this mistake is by initially building a margin to account for these costs and expenses. Since it is a known fact that it will take a while for a franchise owner to see profit, it’s important to have enough capital for the ups and downs along the way. As stated by Entrepreneur, taking out a larger loan ensures greater exposure. All in all, insufficient funding is not a problem you want to run into when building your franchising model. 2) Not Conducting Enough Research The best way to guarantee success in any situation is by knowing what you’re getting into, and this could not ring more true when it comes to restaurant franchising. There are a lot of important details, including understanding the disclosure document and having a correct idea of the franchise agreement your future franchisees will sign. To put it shortly, do your research. This means figuring out the following: Best locations to open your franchise Your local market How much time must be invested How much capital is necessary Some things to consider when it comes to location include whether or not the location is easy to get to and park at, how many similar competitors are nearby, and if the location is visible from busy areas. It is also important to understand your local market and how much time will need to be invested because these factors contribute highly to the success of the future franchise. Restaurants forgetting to research these key things can result in costly mistakes when building their franchising model. 3) Franchising Too Soon It can be easy to get ahead of yourself when it comes to owning a business. The excitement can cause spur of the moment decisions like starting a franchise when you aren’t ready. Some industry experts recommend waiting three years before considering this model. To put it loosely, you’re going to have a very hard time selling franchises if you haven’t planned everything out yourself first. Take things slow and consider the last two mistakes mentioned when making the said plan. 4) Not Seeking Enough Legal and Sales Advice The legal and sales details regarding a new franchise are very complicated and require a great depth of prior knowledge to navigate. This is why it is never a bad idea to ask for help, especially in these two areas. As mentioned above, there are a lot of legal documents that must be signed or issued in order to become a franchisor. Some of these documents include the FDD, or Franchise Disclosure Document, the Operations Manual, the financial statements, and the state disclosure document regarding franchise registration states. Let’s go through the list in order with information stated by Franchise Law Solutions. The Franchise Disclosure Document You must disclose this document to any individual you are offering a franchise It includes the requirement of disclosure regarding information about various items including your franchise offering and legal obligations. The Operations Manual This document is given to the new franchisee after the franchise agreement is signed This manual is pretty self explanatory. It’s basically a how-to guide regarding all aspects from training programs to day-to-day operations. Financial Statements These are included inside the FDD When first starting a franchise, these are usually limited to an opening balance sheet State Disclosure Documentation This documentation is in regards to franchise registration states Franchise registration states are states that have their own franchise requirements. 5) Insufficient New Franchisee Training Franchising management is just as important as any other factor regarding starting a franchise. Too many restaurants focus solely on the operational training, therefore abandoning necessary areas including teaching the franchisee how to run a small business. This is such a prominent characteristic necessary for a successful franchise and the responsibility ultimately falls on the franchisor. Any number of things can lower the standard for franchisees in the eyes of the franchisor, from initial fees to other everyday worries. This is such a common mistake that costs a fortune to recover from, so it's best to know in advance and avoid the burden all together. Train new franchisees in the system’s history and goals. Allow the franchisees to know the morals of your restaurant from the ground up. In Conclusion As I said before, building a franchising model can be an extremely daunting task without the right preparation. That is why this article was written: to help business owners like you in this exciting endeavor. Consider the necessary amount of capital, the thorough amount of research needed, the correct time to start a franchise, the legal and sales advice desired, and the proper training for each new franchisee when starting your franchise. With all of these mistakes in mind, you can do your best to avoid them. Franchising can be one of the best decisions made by a small business owner with the right planning, so make sure to plan ahead of time. Look over every legal document multiple times, and always think critically when offering your franchises to new franchisees. With all that being said, good luck and happy franchising!