If you’re a lover of all things food, then why not turn that passion into your own business by investing in a food franchise? Even if you don’t have much experience with food processing, there are plenty of resources available to help get you started. So what do YOU need to become the ultimate success story when it comes to running a food franchise?
As an aspiring business owner, the food industry can be a great source of opportunity. The latest survey in 2022 revealed there are more than 204,000 fast-food restaurants across America – not to mention snack and beverage franchises as well!
Are you wondering if this could be the perfect endeavor for you?
Well, look no further! Our ultimate guide will provide all the information needed to make a sound decision. Dive into what it means to buy a food franchise and learn about all its details before taking that big leap.
What is a Food Franchise?
If you’re hoping to join the food franchise world, all of your franchising activities must align with FTC regulations.
As a franchisor, you’ll be expected to offer up your company’s brand product, trademark, and business system for use by other entities – but this process is backed up with an agreement that both parties will honor.
Food franchise opportunities are available to anyone ready to take on the challenge; just do some thorough research and evaluate which type of food-franchise best suits all of your needs!
Simultaneously, prospective Franchisors must assess whether or not their applicants have what it takes to run such a business successfully.
Purchasing a food franchise grants you access to an agreement with the franchisor, allowing you to use their trademarked brand, business system, and other assets in exchange for monetary value. The Chick-fil-A restaurant serves as one of the best examples of this concept – although owning a unit means policies must be abided by so that customers receive the same quality product each time they visit.
As such, high standards must be maintained when exploring food franchising opportunities.
The Cost Of Buying A Food Franchise
If you are considering investing in a franchise, one of the essential things to consider is how much money you need or what the franchise fee will be. The amount may vary depending on which company you decide to go with. To give yourself an idea of what costs are involved in franchising, the following are the fees associated with it.
Initial Investment Fee
The initial investment fee charged by the franchisor is compliant with FTC Franchise Rule and it must be paid in full upon signing of the franchise agreement. This one-time payment enables you to establish a relationship with the franchisor, granting you access to their trademarks, licenses, branding, and more.
Startup Costs
Before and after you launch your fast food franchise business, there are certain out-of-pocket expenses that must be taken care of. Pre-opening startup costs involve things such as investigation expenditures, the development of a business plan, and even the necessary furniture for your unit.
Moreover, part of what goes into this fee encompasses any time spent filling up paperwork or obtaining an operating license. All in all, these pre-opening startup costs fuel your journey toward success!
Conversely, after you open your business for operations, be ready to shell out funds for employee salaries, promotions, and advertisements. Don’t forget these startup costs or you may find yourself in a financial bind.
Royalty fees
All franchise businesses, including food franchises, come with royalty fees. These are ongoing payments a franchisee has to make in addition to the initial fee, usually on a monthly basis.
The amount is calculated as a certain percentage of your total gross sales for that month and goes towards covering expenses such as company advertising and continued support from the franchisor.
When exactly you have to pay these royalties can vary depending on the specific business model. However, it is typically expected each month from all its affiliated partners.
Other cash required
When considering investing in a food franchise, there are some prerequisites to be aware of. These mainly include liquid capital and minimum net worth that will cover any unforeseen costs.
Furthermore, having an adequate credit score is also unavoidable – ideally being at least 680 or above. Nevertheless, you don’t need to stress if your credit score isn’t quite up to par – many franchisors still have the capability of accepting applicants with lower scores!
If you believe that your finances allow for purchasing this franchise, it is time to weigh the pros and cons before moving forward.
The Advantages of the Food Franchising
As a prospective franchisee, it is necessary to recognize the merits of owning food franchises. These benefits will not only give you an overview of what this business entails but also boost your confidence in investing in such an endeavor.
Food franchises will always be in demand. Here are the top four advantages that come with operating from food trucks and kiosks to full-service restaurants through franchising:
1. Established Brand Recognition:
One great benefit of venturing into the food franchise industry is the already-established brand recognition that it comes with. This will reduce your marketing costs and help you reach a broader audience.
2. Proven Business Model
If a franchise has established that its business model works. Food franchisees benefit from having access to proven business models, allowing them to achieve success quickly. If affordable fast-food franchises may be the one you are looking for, find out in “The 10 Cheapest Food Franchises to Open Today (2022)” blog.
3. Training and Support
Franchisors typically offer franchisees training and support throughout the course of their fast-food business operations. This will give you the necessary tools to ensure that your food business runs smoothly, without any unexpected hiccups!
4. Low-Risk Investment
Food franchising is considered a low-risk investment due to its established brand recognition and proven business model. This makes food franchising a great way for entrepreneurs to get into the food industry without having to invest too much upfront.
A whopping 36% of all franchises in the United States are within the food industry, generating an immense 48% of total financial revenue. Evidently, food franchise establishments have become a major source for businesses to make money!
5. Financial Assistance
Food franchising also gives you access to financial assistance which can help cover start-up costs and other related expenses. This can be especially helpful if your own funds are limited.
6. Experienced Network
Lastly, food franchising allows you to join an experienced network of franchisees. This gives you access to valuable advice and tips from veteran food business owners that can be extremely helpful as you navigate the food industry.
What are the downsides of food franchises?
As important as knowing the benefits, you should also know the downsides of purchasing a food franchise. Here are some of its disadvantages.
1. High initial investment fee
Depending on the type of food a franchise prepares, a significant investment to get started is usually required. You may need:
- food preparation stations
- ovens or grills
- sinks and dishwashers
- grease disposal systems and vents
- customer seating
- bathroom areas
Not only must you plan for the interior of your restaurant, but also consider exterior factors such as secure parking and/or drive-up lane access, efficient traffic paths surrounding the establishment, and signage that can easily be seen from a distance.
2. Low-wage labor
For many food businesses, a significant portion of the workforce consists of hourly wage employees. Most often, these individuals are entry-level workers who must be thoroughly trained and closely monitored. Depending on the location you may even need to acquire bilingual staff in order to successfully manage your team due to potential high turnover rates.
Keeping a business running requires an immense amount of effort and recruitment to secure enough personnel. In the food industry, labor issues rank amongst the main grievances voiced by franchise owners.
3. Health codes and building restrictions
To guarantee the security of our food, it is expected that we follow numerous codes and regulations provided by the government. Unfortunately for franchise owners, compliance with these standards can be extremely expensive and time-consuming.
Thankfully, excellent franchisors are equipped to provide generous support to their new owners in areas such as:
- zoning
- permits
- code compliance
If you come across food franchises that don’t provide the necessary help, cross them off your list and move on to greener pastures. Don’t put yourself in a position of tackling such an important task alone; there are many other options available for you!
4. Focus on volume
Although food franchises tend to yield lower margins compared to other franchise opportunities, they are still well worth your consideration. When evaluating this type of business opportunity, be sure you factor in the necessary cash outflow for:
- the goods
- the labor costs
- food spoilage
- the competitive nature of fast food pricing
You will end up realizing that your markup per unit of food is small and you have to do a large volume to make a profit.
5. Quality of life
Many people aspired to become franchise owners in order to have control over their work schedules. They want flexibility and to be able to enjoy more leisure time with family, hobbies, or other interests.
Nonetheless, owning a food franchise is an arduous task since they are usually the first ones at the workplace and the last ones leaving; these businesses operate seven days a week even during late night hours.
Moreover, several franchisees find the labor issues deeply exasperating which may lead to burnout at a quicker rate.
Consider these Before Buying a Food Franchise
The company status
Every hard-earned investment is precious. Protect it by doing a company background check. Of course, you want to make sure that the company you’re going to settle with is stable and can survive even if financial crises arise.
How much total capital is needed
You don’t want to dive into expenses without checking if you can make it all. Calculate the total possible cash required in purchasing your preferred food franchise business. See if your finances can supply the necessary expenses, especially during the startup phase.
The volume of your competitors
If you have a location in mind where you want to build your desired food franchise, you have to check the surroundings. Are there competitors near around? What do you have to do?
For example, you might want to open a coffee shop franchise. But not far from your location, you see a different coffee shop. You might want to check if your product and services are not less than what your competitor can offer.
Know the company policy before purchasing
This is the most important part before signing any franchise agreement. You have to thoroughly understand the company rules so you will not get surprises and feel that there are hidden agendas.
One of the things you have to know is the length of the contract agreement. The most food franchise system has a span of 10 years term, and that is the average. Do not forget to ask your franchisee. The longer the term, the more time you have in getting returns.
Understand the FDD
The Franchise Disclosure Document (FDD) is a 23-section legal document discussing the franchise company. From its history, proprietary details, financial statements, training system, restrictions, and a lot more.
In other words, the FDD will give you a zoom outlook of the interiority of the business. Understand how the business is performing so far. It can affect your decision to continue your will to franchise or just to let it go and look for a different franchise opportunity.
Examine your capabilities
From the beginning of this blog, I asked if you have all it takes to manage a food franchise business. How far can you go to reach success? If you have a will, there’s always a way for everything. Right?
That’s absolutely right! Examining your capabilities is one factor you have to do before making any move in the franchising world. If you don’t have the skill but if you can afford to franchise, then go. If you have the skill but not enough funds, you can still go.
There are options out there where you can get back-up on. Just make sure you are ready for anything to be a successful franchisee. With the right will and dedication, you can reach success in franchising for sure.
After gaining all the confidence in purchasing a food franchise, what is the last thing you have to be sure of? Of course, you want to make sure which food franchise is the best one for you. Let me give you the top 4 food franchises you can choose from.
Food Franchise Top Choices
Restaurant Franchise
Olive Garden is widely recognized as the most prestigious franchise in the food industry, and it also happens to be one of its priciest. To exemplify this point even further, Olive Garden has expanded beyond American borders by introducing franchise opportunities worldwide.
With the most profitable franchises in the fast-food industry, like McDonald’s and Burger King, becoming a franchise owner is an appealing business opportunity.
However, it is important to note that the cost of setting up one’s own restaurant depends on both the brand chosen and its location; if you opt for an expansive building as your site., be ready to shell out more money than expected.
Beverage Franchise
If you are in search of a lucrative yet budget-friendly beverage franchise, think of Jamba Juice, Satellitecoffee.com, Starbucks, and many others!
Most franchises require an establishment of some kind – such as a building or leased property – but with the advent of food carts and kiosks, it is now possible for entrepreneurs to open up shop without breaking the bank.
Popular options include…
Happy Lemon
and Green Beans Coffee which has proven to be both accessible and profitable endeavors.
Dessert Franchise
Who doesn’t like desserts? Well, if you like more sweets why not invest in a dessert franchise? Dessert franchises, such as the ice cream franchise (Cold Stone Creamery).
Try to search and you will see a lot of dessert franchises open across the United States. You can create a list of which ones you are interested in the most and check if you can be a dessert franchise owner in the future.
Vending Machine Franchise
With this food franchise, you get more savings than with any other. It doesn’t require hiring employees, nor does it need all your time as well as cooking expertise; in essence, this option is stress-free and convenient!
Investing in a food vending machine may appear to be economical, but you should recognize that it might not generate substantial profits. On average, you can expect around $75 per week or up to $300 every month from the machine.
If one of these franchise opportunities piques your interest, take the time to thoroughly research and explore it!
After determining if this investment is suitable for you based on potential rewards associated with that venture, seize the opportunity and embark upon a journey towards success. Don’t hesitate– make an informed decision today!
Final Takeaways
While some food franchises require plenty of resources to run, such as grills, ovens, and fryers; there are also those that operate simpler operations. A sandwich outlet is a great example – they receive all the necessary ingredients pre-cut, pre-sliced, and even pre-cooked!
This yields fewer hassles for business owners in terms of expenses but still requires extra attention when it comes to spoilage and labor costs.
Despite the success of others in the food and related businesses, it isn’t necessarily a route that works for everyone. Before you invest your life savings into a food or franchise-related venture, ensure you’re aware of all the requirements and have the appropriate skills to succeed.
Fortunately, franchisors will offer extensive assistance so you’ll never feel alone on this journey. Still, feeling unprepared? Reach out to a franchise consultant who can bring better guidance!
You may also read: “8 Fitness Franchises Best to Invest in This Year”
