5 Key Questions To Ask Restaurant Franchisors

Restaurants are tricky to get right and just because you’re getting a franchise brand name doesn’t guarantee success.

Investing in a restaurant franchise opportunity is a decision that will involve raising large sums of money and you want to be confident that you’re getting into a “sure thing” rather than slowly going broke.

In this article you’ll find some important questions to grill yourself and the franchisor with before you take things any further.

Do Locals Like This Kind Of Food?

Is the food already proven to be popular within your region? For example, an ice-cream parlour will do great business in the hot sun of Florida and or the South of France, but it might be a tougher business in Iceland or Anchorage!

Just do a sanity check to be confident that your business has a strong chance of doing really well, not just surviving.

Will The Franchisor Help Choose Locations?

A good franchisor will ask you to invest some money up front for them to do a survey on your behalf. They’ll search around to find the right kind of venue to become a great franchise outlet for you.

Some franchises may even buy the location and then rent it back to you (Franchise Opportunity Guru has been led to believe that McDonald’s now operates in this way, for example).

Will They Give You Financial Help?

On the topic of franchisors’ spending their money, will they help you to fund your franchise purchase by offering you low interest loans or spreading the payment for the franchise in some other way? This can make the difference between being able to afford a franchise or not.

It’s very common practice for the franchisor to spread the “soft costs” of the franchise so that you’re paying for it over the first few years. This can be particularly important with a capital-intensive startup like a restaurant franchisee.

Do They Give Hands-On Help?

It’s one thing to sit in a classroom for a week, or to spend time flipping burgers in a kitchen of another franchisee, but it’s totally different to be set loose in your own restaurant and be expected to make money quickly.

Hands on help to get you out of the gates quickly and up to full running speed will make you profitable sooner than you’ll manage on your own.

Franchise Agreement Used As A Weapon?

There are several horror stories that have been published on the Internet about franchisors who have used the franchise agreement to play dirty tricks on franchisees who step out of line.

In one case, a franchisor threatened to close down a restaurant franchisee for non-compliance with the rules, even though this restaurant was in the top 25% of profitable, successful units. This was simply because they had used some discretion on prices and charged more for their products.

The restaurant was hit with many unexpected inspections and essentially over-managed by the franchisor. Later another restaurant was opened opposite to this one, managed and owned by the franchisor directly. The revenues of the “victim” franchisee dropped by around 30%.

In another case, reported in newspapers in the USA, owners of a popular donut franchise were pushed out of their franchise agreements on technicalities and the restaurants were taken over by franchisees with multiple franchise units.

Thus the franchisor demonstrated that it was more interested in dealing with a smaller number of larger, more ambitious franchisees by culling smaller “mom and pop” operations through technicalities of the franchise agreement.

Tread Carefully…

From this you should now be forewarned – not all franchisors are the same and not all are benevolent organisations that want you to succeed.

As you can see, it pays to know both the policy and behaviour of your specific franchisor before you invest in their restaurant franchise opportunity.

Leave a Reply