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FRANCHISNG YOUR RESTAURANT

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FRANCHISING YOUR RESTAURANT Joseph J. Gottlieb Stout Kaiser Matteson Peake & Hendrick, LLC [email protected] 678-775-3545
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Page 1: FRANCHISNG YOUR RESTAURANT

FRANCHISING YOUR RESTAURANT

Joseph J. GottliebStout Kaiser Matteson Peake & Hendrick, LLC

[email protected]

Page 2: FRANCHISNG YOUR RESTAURANT

What is Franchising?A method for the distribution of goods or

services.Elements of a Franchise

License of a Trademark ;

Payment of an Initial Fee;

Franchisor provides substantial support or marketing plan or the existence of a “Community of Interest” between Franchisor and Franchisee.

Page 3: FRANCHISNG YOUR RESTAURANT

Quick Franchise FactsApproximately 760,000 Franchised

Businesses in U.S.19 Million Americans employed in Franchised

Businesses.Over 75 industries represented.Restaurants are the largest single sector

represented.

Page 4: FRANCHISNG YOUR RESTAURANT

Regulation of FranchisingThe Offer and Sale of Franchises is Regulated

by Federal and State law.Franchise Disclosure Document “FDD” must

be provided to prospects at least 14 days before the Franchise Agreement can be signed and money accepted.

14 states require registration of the FDD.Without a Federally Registered Trademark,

must comply with state Business Opportunity Laws.

Page 5: FRANCHISNG YOUR RESTAURANT

Is Your Restaurant a Good Candidate for Expansion Through Franchising?

Can the concept be duplicated?Are there regional taste factors to consider? Will it sell everywhere?

Is the concept teachable?

Page 6: FRANCHISNG YOUR RESTAURANT

Is Your Restaurant a Good Candidate for Expansion Through Franchising?

Is there an element of uniqueness?

Do you have sufficient proof of concept?Multiple locations?Operating history?

Will the business provide a good ROI?

Page 7: FRANCHISNG YOUR RESTAURANT

Franchising vs. Owner ExpansionFinancial Considerations

FranchisingFranchisee provides capital for expansion.

Can enable more rapid expansion.

Franchisor incurs costs of developing infrastructure to support franchisees, i.e. marketing, franchisee support staff, training.

Page 8: FRANCHISNG YOUR RESTAURANT

Franchising vs. Owner ExpansionFinancial Considerations

Expansion of the brand by Owner will always be limited by ability to finance growth.

Developing a franchise system involves costs of consultants and attorneys.

Page 9: FRANCHISNG YOUR RESTAURANT

Franchising vs. Expansion by OwnerRegulatory Issues

Franchisee has burden of compliance with local laws and tax compliance.

Franchisee has burden of compliance with HR and other employment issues.

Franchisor must comply with detailed Federal and State Franchise laws and regulations. Includes disclosure of Franchisor’s audited financial statements and other information.

Page 10: FRANCHISNG YOUR RESTAURANT

Franchising vs. Expansion by OwnerFinancial Rewards

Franchisee pays Initial Fee from $25K - $50K

Franchisees typically pay a royalty based on GROSS REVENUE.

Average range 5 – 7%

Franchisors give up larger portion of profit, but have less downside risk from operational problems.

Franchisors may not realize profit for several years.

Page 11: FRANCHISNG YOUR RESTAURANT

Franchising vs. Owner ExpansionOther Considerations

Franchisee has better knowledge of local market.

Franchisee has “skin in the game” and more highly motivated than an employee

Page 12: FRANCHISNG YOUR RESTAURANT

Franchising vs. Owner ExpansionOther Considerations

Franchisor loses a certain amount of control.Franchisor can control ultimate product or service.Cannot micro-manage.Joint employee exposure – NLRB.

Difficult to find good franchisees.

Start-up franchises may be difficult to sell.

Page 13: FRANCHISNG YOUR RESTAURANT

Issues Specific to Restaurant FranchisesHeavy Franchisee Reliance on Franchisor

Menu Development and Changes.

Sourcing of Product.

Proprietary Ingredients and Recipes.

Page 14: FRANCHISNG YOUR RESTAURANT

Issues Specific to RestaurantFranchises

Choosing your Franchisees

Brick and Mortar, Food Truck, Alternate Venues?

Page 15: FRANCHISNG YOUR RESTAURANT

Do You Really Want to Be a Franchisor?Running a franchise system is a different

business.

Legal compliance.

Must establish System Standards in an Operations Manual – the “How-To” Guide for the Franchisees.

Page 16: FRANCHISNG YOUR RESTAURANT

Do You Really Want to be a Franchisor?Must build an infrastructure to support

franchisees.

Branding and internet presence.

Cost of attorneys and consultants could easily exceed $150,000. Return on investment may be slow.

Page 17: FRANCHISNG YOUR RESTAURANT

Other OptionsJoint Ventures: Not a franchise but typical

partnership problems can arise, i.e. division of responsibilities, disengagement, etc.

Licensing – Can be done on a “One-Off” basis, but may be deemed a franchise or Business Opportunity under state law.

Page 18: FRANCHISNG YOUR RESTAURANT

Questions


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