This is not to say that a franchise, especially with a nationally known company, is not an excellent business opportunity. Many franchisees are happy with their corporate partners and line up to open new units (which are usually quite expensive). Franchises work best at the fast-food end of the food-service continuum. Fast-food franchise restaurants are selling sameness. The customer knows what to expect, and chooses to go to a
McDonald’s, for example, because it will be just like the last McDonald’s he or she went to. And that is precisely why very little leeway is allowed in franchises for the creative ideas of the individual franchisee. In our experience, the dream of most new restaurant entrepreneurs is to establish their own concepts to reflect their own personalities and what they think they have to offer the public. The very elements that make your restaurant unique are often at odds with the basic franchise precept: the duplication of someone else’s already-developed dream. We have found that the people who are attracted to the idea of opening their own restaurant usually find the tightly controlled climate of the franchise experience too restrictive, and often, after a few years they want to break out on their own.
If you do opt for franchising, however, there are several things you would do well to keep in mind. Carefully check out the particular franchise that interests you. Try to find answers to as many of these questions as you can:
• How well known is the franchise in which you are interested? (Remember, you will be paying a substantial amount of money, in part because the product you will be selling is supposed to have a certain amount of market penetration already established by the franchisor. If it doesn’t, what exactly are you paying for?)
• How long has the franchise operation been operating?
• Is it financially stable?
• Are new locations being opened regularly?
• Have locations failed? If so, why?
• Contact other franchisees. Do they have complaints?
• Is your proposed territory clearly defined? Do you have guaranteed exclusivity?
• Can you select your own location?
• Are there standards to be met for the location? How flexible are they?
• Are the various kinds of equipment and fixtures specified? Must you purchase them from the franchisor?
• Are there training programs in place for you and your staff? Who pays for these? You or the franchisor?
• Are the prices set? Are you allowed to offer sales incentives in your store alone if business becomes sluggish?
• Is there a minimum amount of product that must be purchased from the franchisor?
• How much input do you have in franchise-wide advertising campaigns?
• Does the franchisor have bank-financing programs available for you?
Some other questions about the franchise agreement itself you should consider are:
• What is the duration of the agreement?
• Under what conditions can the agreement be terminated?
• Can you resell the franchise? What conditions apply?
• What happens if you die? Will your heirs be allowed to continue the business?
For more information on business structures, see Canadian Legal Guide for Small Business, a title in the Self-Counsel Legal Series.
These questions and others, especially regarding bankruptcy or the agreement’s termination, renewal, transfer, or sale, are critical decision points when considering the purchase of any franchise.
For further information, contact:
American Franchisee Association
Phone: 312-431-0545
www.infonews.com/afa
Canadian Franchise Association
Phone: 905-625-2896
Toll free: 1-800-665-4232
www.cfa.ca
There are any number of franchise information websites. Try:
Franchise Info Mall
Phone: 310-891-2865
Toll free: 1-877-463-6625
www.franchiseinfomall.com
Or speak with the franchising section of most Canadian Banks. The Business Development Bank of Canada also has general franchising information:
Phone: 1-877-232-2269
www.bdc.ca
KEY POINT
The key to all these questions and many others is the franchise agreement itself. If ever there is an important time to get good legal advice, it is before you sign probably one of the most important (and usually the longest) legal contract of your life. Take the contract to a well-recommended lawyer who has experience in restaurant franchises. The advice of a lawyer with very specific knowledge and experience in this specialized area is worth a sometimes exorbitant fee for a few hours’ time.
5. Building Your Team
It’s important that you invest valuable time in choosing your business structure and partners. Harmony will prevail only if each member has a role or purpose. Choose your partners or investors based on what they can bring to the group. If one member is expert at running the kitchen (often known as “the back of the house,” and sometimes as “the heart of the house”), that person should participate as an expert in developing and training the employees under his or her direction. You will also need someone to specialize in running the “front of the house” — that part of your establishment that is visible to your customers. This person would be responsible for the service standards, and for developing a personality or feel for the area outside the kitchen. Usually, in a small restaurant, this would be one of the owners (possibly you).
The front of the house and the back of the house must work together to create the harmony and balance of the food, wine, and ambiance in the restaurant. The front-of-the-house person must have a finger on the pulse or heartbeat of the operation. He or she should be adept at training and developing the service staff, including wait staff and bartenders. Wine is becoming important to complete a dining experience. If you intend to feature a wine menu in your restaurant, the front-of-the-house person should be willing to expand his or her knowledge in this area. The chef and the front-of-the-house person should be able to suggest particular wines to complement the menu items and, in turn, the wait staff can be trained to do the same.
Similarly, one member of your team should deal with the investment and/or legal side of the business. The “numbers” person must communicate with the other partners at all times so the project remains financially viable. Regular meetings should be held to ensure that all parties work together.
The team should be on board early in the planning stage. Complement your abilities by hiring professionals who are strong in areas where you are weak. Often the partners do not bring a chef or kitchen manager on board early enough to prevent major design errors. Once you have drafted your menu, it is time to hire that kitchen manager/chef to help design your kitchen (and to begin putting his or