How to Buy a Franchise Restaurant in 2024: The Ultimate Guide

Whether you’re a seasoned restaurateur or a first-time entrepreneur, the decision to venture into the food service industry demands careful consideration and strategic planning. Buying a franchise restaurant presents itself as a compelling option for restaurateurs in 2024.

The allure of franchising has grown significantly among those who prefer structure and support when entering the complex world of the restaurant industry. In this comprehensive guide, I’ll walk you through how to buy a restaurant franchise, including steps to get started and what you can expect to spend. I’ll also answer some frequently asked questions about how to get started with a restaurant franchise. So let’s dive in.

Step 1: Start With a Self-assessment

Begin by assessing your interests, skills, and preferences for restaurant work. Consider the type of cuisine you are passionate about, what general business skills you have, and the level of involvement you want in day-to-day operations. It is common for restaurant franchisees to have less hands-on restaurant experience than a traditional restaurant owner. That’s OK—any franchise you work with will offer extensive training. But an honest assessment of your skills will help you find the right match and ensure you get the training you need.

Your future franchise partners, investors, and loan officers will have a lot of questions about your skill set and comfort level as you go through the franchising process. So start your franchise journey with a clear understanding of your skills and limitations.

Step 2: Conduct Market Research

Market research for franchise restaurants has two major components: assessing your general food service market and assessing what franchises are available in your area. Conduct thorough market research to identify trends, consumer preferences, and potential competition in your market location. Understanding the local market dynamics will help you select a franchise that aligns with the needs of your target audience.

You’ll also want to consider what restaurant franchises are available in your area. You can’t simply decide to open a McDonald’s anywhere you want to; most franchise companies have quotas and market restrictions. It is also possible that a franchise restaurant you love has not yet expanded into your market, so you may not be able to open one on your preferred timeline.

You can find franchise restaurant opportunities on franchise listing sites. Many franchise listing sites also include training resources and other tools to help you compare available franchises in your area. As you are considering various restaurant franchise options, evaluate the suitability of the franchise for the chosen location. Consider factors such as demographics, foot traffic, and local competition. Some franchises may perform better in specific types of neighborhoods or regions.

Step 3: Evaluate Franchisor Support, Reputation & Flexibility

With a short list of franchisors in hand, evaluate the level of support offered by the franchisor. A reputable franchise should provide comprehensive training programs, ongoing support, marketing assistance, and a proven business model. Research the franchisor’s reputation within the industry and among existing franchisees.

Consider the level of flexibility the franchise allows in terms of menu offerings, local marketing strategies, and operational decisions. Some franchises offer more autonomy to franchisees, while others have stricter brand standards.

Reach out to existing franchisees within the same brand to gather insights into their experiences. Ask about challenges, successes, and the level of support provided by the franchisor. Existing franchisees can provide valuable perspectives on the day-to-day realities of running the business.

Step 4: Review the Franchise Disclosure Document

Once you have settled on a franchise prospect, contact them to obtain a Franchise Disclosure Document (FDD). This document contains essential information about the franchise arrangement, including financial performance, fees, obligations, and legal aspects.

If you need help navigating the FDD, reach out to an attorney that specializes in franchises. You’ll want one when you get further in the franchise process, anyway. You can ask other franchisees who they used for legal advice, or search legal services websites like LegalZoom for attorneys in your area with franchise experience.

Step 5: Get Funding

The FDD will list the total investment required as well as ongoing fees you can expect as a franchisee. So the next step is to assess your financial capabilities and evaluate whether this franchise is one you can afford (or if you can raise enough money to afford it).

You’ll want to consider the initial franchise fee and also ongoing royalties, marketing fees, and other operational costs. Ensure the financial commitment aligns with your budget and long-term financial goals. Consider different sources of capital like start-up business loans, personal loans, or Small Business Administration (SBA) loans.

Step 6: Get Legal Assistance to Complete Your Franchise Agreement

If you didn’t secure legal help when assessing the FDD, now is the time to engage legal professionals. You want to make sure you fully understand the terms and conditions outlined in the franchise agreement before making a commitment.

Step 7: Go Through Franchisee Training

Once your franchise agreement is accepted and you have made your initial investment, your franchisor will schedule comprehensive training for you. You might need to travel to the corporate headquarters for several weeks to go through the whole process. Franchisee training will cover basic business management, food safety, supply ordering, employee training, and more. It’s like a master’s program in restaurant management.

Step 8: Build or Renovate

Training can last up to three months, so while you’re training, you’ll likely have some construction going on behind the scenes—either to build a new location to your franchisor’s specifications or renovate an existing space to suit your needs. Your franchisor will provide you with most of the details you need, and may even have a list of approved vendors for you to use.

Step 9: Hire & Train Staff

The franchisee training from your franchisor will help you understand what qualities will help an employee be successful in your new business. For many years, franchise employees were treated solely as the staff of the franchisee. New rules from the National Labor Relations Board (NLRB) have shifted the relationship between franchisors and franchisees, though. Depending on your business size and the size of the franchisor, you may be considered “joint employers.”

So you should expect to collaborate closely with your franchisor on employee policies and training. Depending on the size of the franchise company and its employee makeup, you may need to coordinate with a labor union, too.

Your franchisor will typically supply all the training materials you need to get your staff up to speed. From recipes and food preparation instruction for your kitchen team to service and point of sale training for your front of house staff, you’ll have everything you need.

Step 10: Plan Your Grand Opening

With your agreement signed, and yourself and staff trained, you’re ready to open your doors. Your franchisor will typically offer a lot of support for marketing your opening. You’ll also have the excitement from your local community who have likely been watching your construction or renovation with anticipation. A Jersey Mike’s franchise opened near me a couple of weeks ago and there are still lines through the front door every lunch and dinner.

That’s one of the major benefits of franchising. You get the marketing boost and customer familiarity with the brand, which can boost your bottom line from the day you open.

Pros and Cons of Buying a Franchise Restaurant

There are many advantages and disadvantages to going the franchise route when opening a restaurant. Let’s take a closer look at the pros and cons:

Pros

• Easier to start: Franchises are meant to be pretty much turnkey for the franchisee. They already have branding, menus, operational workflows, suppliers, and more. That means it can be much easier to open the doors to your restaurant versus if you were doing it all on your own.
• Access to franchise resources: To that end, joining a franchise grants you access to the relevant resources. This might include things for marketing, product development, customer retention, operations, legal tasks, and more. You gain access to a whole collection of resources.
• Brand recognition: Franchises are already established, so you get to ride the wave of brand recognition to restaurant success. There’s no need to develop a product, concept, or brand. Rather than spreading the word about your restaurant and concept, you’ll be focusing on promoting your specific location.
• Proven business model/product: When you opt for a franchise with proven success, you get to take advantage of that as well. Franchises are tried and tested, so you know the concept can be successful.
• More affordable to start: Rather than starting a restaurant concept completely on your own, investing in everything from business development to branding to product sourcing and everything in between, franchising offers a potentially more affordable means of starting a restaurant.
• Easier to get financing: Lenders and investors tend to feel more comfortable loaning to businesses with a greater chance of success. Because franchises have track records of success, this may appease potential sources of capital.
• Entry to entrepreneurship: If this is your first foray into business ownership, having the support of a franchise can be a great way to whet your palate. It offers an excellent opportunity for learning hands-on.

Cons

• Requires a significant upfront investment: Starting a franchise restaurant involves a substantial upfront investment, which includes franchise fees, equipment costs, and other expenses. This financial commitment can be a barrier for individuals with limited capital.
• Restrictions around funding sources: Franchisees may face limitations on the sources from which they can secure funding. Some franchisors have specific requirements or restrictions on financing, potentially limiting the flexibility of the franchisee in seeking capital.
• Royalties and licensing fees: Franchisees are typically required to pay ongoing royalties and licensing fees to the franchisor. These fees, while contributing to support and resources, can impact the profitability of the individual franchise location.
• Minimal to no creative control: Franchisees have limited autonomy when it comes to making creative decisions about the restaurant. They must adhere strictly to the established brand standards and operational guidelines set by the franchisor, limiting their ability to implement unique concepts.
• Must adhere to brand standards: The consistency that comes with a franchise can be a drawback as well. Franchisees must adhere strictly to the franchisor’s brand standards, leaving little room for customization based on local preferences or market trends.
• May be subject to corporate regulations: Franchisees may find themselves subject to corporate regulations set by the franchisor rather than being treated as independent small businesses. This can limit the flexibility of decision-making and adaptation to local market conditions.
• Must meet franchisor’s eligibility requirements: Franchisees must meet specific eligibility criteria set by the franchisor, which may include financial stability, experience, and other qualifications. This can be a barrier for individuals who don’t meet the franchisor’s standards.

How Much Does It Cost to Buy a Franchise Restaurant?

​​Most small restaurants spend around $275,000 to open, although costs vary by restaurant type and can range significantly, anywhere from $95,000 to over $2 million. As far as restaurant franchises specifically, this range is $200,000 to $2 million.

The costs associated with opening or buying a restaurant franchise can vary widely based on factors such as the franchise brand, location, size, and specific requirements of the franchisor. Here’s a list of common costs you may incur:

• Franchise fee: A one-time upfront payment made to the franchisor for the right to use their brand and operating system. This fee, plus royalties, contributes to the support and services provided by the franchisor, including training, marketing, and ongoing assistance.
• Royalties: Ongoing fees, usually calculated as a percentage of sales, paid to the franchisor for continued support, brand use, and access to resources.
• Business incorporation: $285–$3,400. Also involves creating and filing business documents with your state (DIY, or $150 to $1,000/hour for a small business attorney).
• Initial investment: $15,000–$80,000+. The overall initial investment includes costs such as leasehold improvements, furnishings, kitchen equipment, signage, and other setup expenses. All items that are not part of the building itself, from lighting fixtures to tables and kitchen ranges to spoons. Costs vary widely based on restaurant size. The estimates in this table are based on a 20-seat and 100-seat restaurant.
• Real estate: Creating and filing business documents with your state (DIY, or $150 to $1,000/hour for a small business attorney). Expenses related to acquiring or leasing the physical space for the restaurant, including rent, security deposits, and possibly real estate commissions. This includes monthly rent and revenue share with landlord (common in competitive markets).
• Buildout and renovation: $100–$800 per square foot. Costs associated with customizing the restaurant space to meet the franchisor’s standards, including construction, interior design, and decor. May also include permits and construction costs for renovating your space.
• Equipment and supplies: Purchase or lease costs for kitchen equipment, utensils, dishes, and other supplies necessary for restaurant operations.
• Working capital: Funds set aside to cover day-to-day operational expenses, such as payroll, utilities, and inventory, until the restaurant becomes profitable.
• Marketing and advertising: $350–$20,000+. Contributions to national or regional marketing and advertising funds as specified in the franchise agreement. Might also include a website, social media, or paid ads. Budget for promotional activities and marketing campaigns to generate awareness and attract customers during the restaurant’s grand opening.
• Staff: $1,200 per employee; 8% of wages for payroll tax. Costs account for posting to job sites, initial staff training, and payroll tax.
• Training costs: Fees associated with training programs provided by the franchisor for the franchisee and their staff.
• Technology and POS systems: $3,000–$10,00 upfront; $0–$1,000 per month. Costs for implementing POS systems, security, phones, computer hardware, and other technology required for efficient operations.
• Insurance: $2,000–$8,000 upfront; 3%–7% of gross payroll. Expenses related to obtaining necessary insurance coverage for the restaurant, including business liability, property, unemployment insurance, employee health insurance, and workers’ compensation insurance.
• Legal and professional fees: Costs associated with hiring legal and professional services for reviewing the franchise agreement, obtaining necessary permits, and ensuring compliance with local regulations.
• Licenses and permits: $700–$15,000+. Fees required to secure the various licenses and permits necessary for operating a restaurant in the chosen location. Includes Health and Safety permits (food vendor’s license, fire safety permit, certificate of occupancy, etc.)
• Sanitation: $465–$6,600. Covers things like garbage removal, grease removal, pest control, and commercial cleaners.
• Inventory: $5,000–$35,000+. Purchases of food, beverages, paper supplies, and cleaning supplies.
• Contingency fund: $9,000–$100,000. A reserve set aside for unforeseen expenses or any unexpected challenges that may arise during the establishment and operation of the restaurant. This should be six months of operating expenses or about 10% of total revenue for contingency.

How Franchises Work

Here’s how the typical franchise model works in the context of a restaurant:

• Franchisor: The franchisor is the company that owns the original restaurant concept, brand, and business model. They have developed a successful and replicable system that they offer to others.
• Franchisee: The franchisee is the individual or group that purchases the right to operate a restaurant using the franchisor’s brand, trademarks, and business model. The franchisee is responsible for the day-to-day operations of the restaurant.
• Franchise agreement: The franchise relationship is formalized through a legal contract known as the franchise agreement. This agreement outlines the terms and conditions under which the franchisee can operate the business, including fees, royalties, support, and other obligations.
• Uniformity: One of the key features of franchise restaurants is the uniformity of the brand and the customer experience across different locations. Franchisors provide guidelines and standards to ensure consistency in products, services, and overall branding.
• Training and support: Franchisors often provide training and ongoing support to franchisees. This helps ensure that the franchisee understands and implements the franchisor’s business model effectively.

How to Choose Which Franchise to Buy

Choosing the right business franchise to buy is a crucial decision that requires careful consideration and thorough research. Choosing a restaurant franchise requires a balance between personal preferences, financial considerations, and the viability of the franchise in the chosen market.

Here are some tips to help you make an informed choice:

Think About Franchise Growth & Stability

Assess the growth and stability of the franchise brand. A well-established and expanding franchise with a strong track record is more likely to provide long-term success for franchisees.

Attend Discovery Days

Many franchisors offer Discovery Days where potential franchisees can visit corporate offices, meet the leadership team, and get a firsthand look at the operation. Attend these events to gain deeper insights into the franchisor’s culture and operations.

Remember the Long-term Vision

Consider your long-term goals and whether the franchise aligns with your vision for growth. Evaluate the scalability and potential for multiple units if expansion is part of your business plan.

Frequently Asked Questions (FAQs)

Here are some of the most common questions I encounter about buying a restaurant franchise.

Bottom Line

Now that you know how to buy a restaurant franchise, the key to success lies in choosing the right franchise to be a part of. Navigating this business decision demands a blend of self-awareness, strategic evaluation, and comprehensive research. The support and reputation of the franchisor, the flexibility the franchise offers, insights from existing franchisees, and the suitability of the location all play pivotal roles in determining the potential success of your venture. Prospective franchisees can embark on a journey that not only aligns with their individual aspirations but also positions them for long-term success in the dynamic and competitive world of restaurant ownership.