Author Topic: Evaluating a Restaurant to Franchise  (Read 5935 times)

Baylor3217

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Evaluating a Restaurant to Franchise
« on: June 30, 2013, 03:05:03 PM »
Here in Texas there's a relatively new chicken restaurant called Bush's Chicken. 

I've looked at doing something like a restaurant franchise since i was in college but always concluded I could make more money selling my time to someone else.  I believe I have thus far, but it's been a decade and these restaurants have seemingly exploded in the central Texas area, but have not yet branched into the more populated major cities just yet.

Does anyone have any experience here?  I've also been curious what someone could make franchising an In and Out Burger that just entered Texas in the last 2 years.  I don't believe they franchise though but there is always a line out the door, which to me is absurd as I'd never stand in that line for a burger, but people do it.

Here's some of the details from the Bush's Chicken website.  Are these in line with standard franchise agreements for fast food restaurants?

Franchising Facts

    Franchise Fee: $30,000 first location. $25,000
    for each additional location
    Royalty Fees: 5% of Gross Sales (excluding sales tax)
    Agreement Terms: 10 years with one 10 year renewal
    Average Unit Size: one acre lot and 3,000 square foot building

tomsang

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Re: Evaluating a Restaurant to Franchise
« Reply #1 on: June 30, 2013, 03:26:22 PM »
Run the numbers, ask others who own a franchise, understand how they run, what are they guaranteeing vs. exclusive domain, etc.  How much equipment and tenant improvements do you have to buy? They want to sell as many franchises as possible, you want to keep others from competing.  If they are new in your area convince them that you should have a large guarantee of no other franchises in within x miles. 

Another big one for restaurants is that the franchisor makes you buy their product from them. They jack up the costs of ingredients, so they are making 5% gross plus the mark up on the supplies.  Keep an eye on this.

I have seen it where franchisors don't necessarily care if you go under as that allows them to sell another franchise fee to the next sucker.

Good luck!  I look forward to seeing the numebers and what you decide.

Tom

SnackDog

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Re: Evaluating a Restaurant to Franchise
« Reply #2 on: June 30, 2013, 03:38:15 PM »
In and Out Burger is pretty famous in California for huge revenues.  They pay their workers well and managers even better.  Store managers earn $100-120,000 per year.  I assume owners make more, but I could be wrong.

Baylor3217

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Re: Evaluating a Restaurant to Franchise
« Reply #3 on: June 30, 2013, 04:03:18 PM »
In and Out Burger is pretty famous in California for huge revenues.  They pay their workers well and managers even better.  Store managers earn $100-120,000 per year.  I assume owners make more, but I could be wrong.

In and Out Burger doesn't franchise. 

Spork

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Re: Evaluating a Restaurant to Franchise
« Reply #4 on: June 30, 2013, 04:55:45 PM »
I don't have any real advice... but... this was always something I considered doing after retirement.  We looked at a handful of them... some of them had requirements like "must have X million in the bank" or "must commit to buying 10 locations".

FWIW, I've also seriously thought about the food truck/hot dog vendor type of thing.  They're low, low overhead and some of them actually make decent money.  Of course, a traditional franchise you could eventually set up and sell (or hire out management once it's working).  With the food truck type thing, it might not be such an option.  (We looked at the food truck thing a few years back and our county seriously discourages this sort of thing -- to the point that they make getting the license almost impossible.)

KingMe

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Re: Evaluating a Restaurant to Franchise
« Reply #5 on: June 30, 2013, 06:26:50 PM »
I have some secondhand experience from a family member who had an ill-fated experience as a franchisee. Much depends on the specific terms of the franchise agreement with the mother company. It was able to control so much of what he did and they could terminate the agreement, leaving him in exposed financially, under varied circumstances. If you consider this seriously, you'll want to have an experienced franchise lawyer of your own.

Christof

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Re: Evaluating a Restaurant to Franchise
« Reply #6 on: July 01, 2013, 12:41:58 AM »
Have you worked in the restaurant business before? If not, try getting in touch with the owner of one of these restaurants somewhere not too close to your area and ask if you can work there for free for three months in various positions. That should give you a better idea how various processes work in this franchise and let you view a sample of the problems you will encounter in your own shop.

Secondly, check what the closing rates are for restaurants in your area in general and for that particular chain country-wide. In Germany it's around 80% of newly opened restaurants that close within three years. I guess the numbers are different in the US, but it's still worth to check them.

Finally,  people that spend look wealthy to the majority. You and I know that wealth is the income you don't spend. If these restaurants pop up everywhere it does not mean that they are successful. It merely means that many people spend their money to open one. They might run out of money and sell the restaurant to the next owner without you ever noticing.

 

Wow, a phone plan for fifteen bucks!