If you’re considering franchising your restaurant, congratulations – your business is primed for expansion! Franchising is one of many strategies to grow your business. It can help you reach new customers, increase brand recognition across Australia, and create opportunities for mergers or acquisitions. So, what are the next steps if you believe your restaurant is ready for franchising? In this guide, we break down how to start a franchise restaurant. This resource is designed for current restaurant owners who want to establish a franchise operation and become the parent company. Let’s explore the step-by-step franchising process below.
Introduction to restaurant franchising
Restaurants can grow through various methods, such as:
- Self-funded growth: Reinvesting profits into the business.
- Investor-supported expansion: Bringing in external investors.
- Franchising: Leveraging the resources and expertise of a parent company.
Franchising allows restaurant owners to expand their brand while utilising the startup capital and effort of franchisees. Well-known franchises like McDonald’s, Domino’s Pizza, and Outback Steakhouse exemplify the potential success of this model.
The pros and cons of restaurant franchising
Pros:
Brand awareness
By franchising, you can leverage an already established brand, reducing the need for significant initial marketing expenditure.
Ready customer base
Franchising allows you to tap into an existing customer base that is familiar with your brand and products.
Proven market fit
A franchised restaurant benefits from the parent company’s tested business model, increasing the likelihood of success.
Cons:
High costs
Initial franchise fees in Australia can range from AUD 5,000 to AUD 1 million, excluding additional real estate, equipment, and staffing costs.
Limited innovation
Franchise agreements often restrict the franchisee’s ability to modify the menu or introduce new items.
Financial oversight
Franchise agreements typically allow the franchisor to monitor the franchisee’s financials, which can be a drawback for those valuing financial privacy.
Restaurant franchising: a step-by-step guide
1. Assess feasibility
Before proceeding, assess if franchising fits your restaurant. Consider:
- Scalability issue: Opening another identical restaurant doubles your workload, even with a franchisee’s support.
- Liquidity: Ensure your emergency fund can cover new restaurant costs and maintain financial stability for both you and your franchisee.
- Demand: If market research doesn’t show strong potential, focus on building your current restaurant’s presence before considering franchising.
2. Develop a business plan
Your franchise business plan should include:
- Business goals
- Current financial analysis
- Short- and long-term financial forecasts
- Brand mission, vision, and values
A comprehensive plan will guide your growth and attract potential franchisees.
3. Secure financing
Options for financing your franchise include:
- Leveraging personal capital
- Traditional business loans from Australian banks or credit unions
- Collecting franchise fees from franchisees
4. Establishing a legal framework
In Australia, it’s advised to establish a separate legal entity for franchising, distinct from the primary restaurant business. This results in three distinct entities:
- Alto Franchising Pty Ltd (parent company for future franchise locations)
- Alto Eats Pty Ltd (original restaurant)
- Alto Eats Melbourne Pty Ltd (first franchise location)
This separation ensures legal and financial independence, protecting each business in case of challenges.
5. Create an operations manual
An operations manual ensures consistency across franchise locations, covering aspects like menu preparation, dress code, facility design, and streamlined HR and payroll processes.
6. Find franchisees
Recruiting the right franchisees is crucial. Look for candidates with:
- Significant restaurant experience
- Adequate capital
- Proven ethical and successful business practices
7. Marketing and launch
Effective marketing is essential for a successful launch. Consider hiring a marketing firm to manage social media and promotional efforts, ensuring your first franchise location opens with significant fanfare.
8. Manage and support your franchise network
As your franchise network grows, supporting your franchisees is vital. Responsibilities include maintaining brand integrity, helping with operational challenges, and overseeing finances.
9. Measure success
Evaluate your franchise’s success by assessing individual and overall brand performance. Metrics should include profitability, customer satisfaction, and brand reputation.
10. Plan for the future
Regularly update your business plan and financial forecasts to stay future-focused—set goals related to brand image, menu offerings, ingredient sourcing, and human resources.
Chef Collective: Partnering for success
Franchising is a robust strategy for expanding your restaurant business in Australia. With careful assessment, detailed planning, secure financing, and strong franchise support, you can build a successful franchise. Chef Collective’s dark kitchens offer cost-efficiency by eliminating the need for expensive retail space, enabling franchisees to expand into new markets without traditional overhead costs. Additionally, dark kitchens provide flexibility for testin8g new menu concepts or markets with minimal risk, allowing franchisees to capitalise on the growing demand for food delivery services. Explore more at Chef Collective.