Franchise Disclosure Document vs. Franchise Agreement

Posted on March 30, 2021March 30, 2021 by Franchise Strategist

Our article contributor today is Jonathan Barber, Partner at Franchise.Law. Jonathan review the differences between the Franchise Disclosure Document(FDD) nand the actual contract you’ll be asked to sign upon entering into an agreement with a Franchisor. Purchasing a franchise can be a complicated transaction and understand these documents is critical. Jonathan shaes some great insight here but to truly understand the issue please feel free to contact him at the link below in the article.

Franchise Disclosure Document vs. Franchise Agreement
By Jonathan Barber

When most people buy a franchise, they look at the Franchise Disclosure Document (FDD) and believe that everything within that document is their contract with the franchisor. However, this is not the case. It is important to understand the difference between the franchise disclosure document versus the franchise agreement when looking to enter a franchise.

What Makes the FDD Distinct from the Franchise Agreement?
What some do not realize is that the FDD is merely an overview of the franchise relationship and includes the experience of the franchisor and its officers; the litigation and bankruptcy history of the franchisor and its officers; the costs the franchisee candidate can expect to incur in building out and operating the franchise; a history of the franchise itself; and the support that the franchisee can expect to receive. The FDD is not a contract itself, although a franchisor can be held legally liable for its contents if an issue of misrepresentation arises. The FDD contents are dictated by federal and state regulations which have several limitations on what franchisors can and cannot include such as financial representations and disclaimers.

When reading the FDD, a franchisee candidate will find several exhibits which include financial statements for the franchisor, a sample copy of the franchise agreement, other standard contracts that the franchisee may be required to sign, if any, state amendments to the franchise agreement and FDD, and receipts to acknowledge that the franchisee candidate received the FDD.

The franchise agreement, on the other hand, is the actual contract between the franchisor and franchisee. The terms of the franchise agreement are binding between the parties, subject to certain changes by some states and allowable variances through operations manual revisions. Although many portions of the FDD are reflected in the franchise agreement, such as ongoing fees, default and termination provisions, and territory size, the franchise agreement goes further into detail to address the rights, roles and obligations of both the franchisee and franchisor in legal terms.

Additionally, when reviewing the franchise prior to purchasing, a candidate should understand that any changes made will be made exclusively to the franchise agreement, not the FDD. In most cases these changes, if any, are made through an amendment to the franchise agreement and must be signed along with the franchise agreement. If any changes are not made in writing and signed by both franchisee and franchisor, then either side risks these changes not being enforceable.

Because of the differences between the FDD and franchise agreement, we highly recommend having a franchise attorney review both documents thoroughly before purchasing the franchise or launching the franchise brand. If you need assistance, please reach out to our team today.
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About the Author:JONATHAN N. BARBER MANAGING ATTORNEY
Jonathan Barber is a passionate and experienced corporate transactions and litigations attorney. He has ample experience with large finance corporations, but his true passion lies in working with entrepreneurs and small businesses. This led him to the Liberty University School of Law where he studied transactional law.

After graduating with his JD, Jonathan became an adjunct professor of business law at a local community college, then began working as an associate attorney under Jason Power. Like Jason, Jonathan’s drive comes from his “healthy disregard for the impossible.” Ready to take on any challenge, Jonathan will do everything possible to find a solution. His diligence and commitment to law has led him to being named a 2019 1851 Magazine Franchise Legal Player, 2019 and 2020 Franchise Times Legal Eagle, and 2016, 2017, and 2018 North Carolina Pro Bono Honor Society.

Cabin Fever Will Drive a Franchise Explosion

Posted on March 23, 2021March 23, 2021 by Franchise Strategist

There are available franchise opportunities that can satisfy a wide range of prospective franchisees. From fast food concepts to children’s services there are franchises that require an affordable investment that can meet an increase in customer demand.

Cabin Fever Will Drive a Franchise Explosion

FRANCHISING, — Ed Teixeira is Chief Operating Officer of Franchise Grade and was the founder and President of FranchiseKnowHow, L.L.C. a franchise consulting firm.

By Ed Teixeira. VP Franchise Grade, Author, MA Economics, Industry Partner Stony Brook U.,Advisory Board Pace U. Lubin School

The havoc caused by the Pandemic has given a new meaning to the term cabin fever which is typically attributed to a bad winter. Instead, this recent case of cabin fever has lasted throughout the spring, summer and winter. As the disruption caused by the Pandemic begins to subside with more of us getting vaccinated people are looking to break out from being stuck at home.

Whether its recently overcrowded restaurants, golf courses or a surge in vacation rentals, people want to get out. This movement has started to translate into an increased focus on franchise opportunities. Every credible franchise forecast predicts a very active 2021 for the franchise industry. If there is one thing the franchise model proved during the Pandemic is its resilience to withstand it’s negative impact that caused so many independently owned small and medium businesses to close.

Consider the disruption in children’s lives by their not being able to attend school or participate in recreational actives. Parents of school age children will want to make up for these losses by utilizing the various services provided by children’s franchise brands from tutoring to creative arts to recreational programs.

A good resource is, https://www.franchisegrade.com/search which presents over 2,500 franchise opportunities that prospective franchisees can view at no cost. Visitors can use filters to find the type of franchise they prefer, the amount of investment and compare various franchise opportunities.

Now is the time to shake off that cabin fever and take that next step by finding that franchise opportunity that fulfills your vision and meets your budget.

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ABOUT THE AUTHOR:
Currently the VP of Franchise Development for Franchise Grade.com. Ed has over 35 years in the franchise industry as a franchise executive and franchisee. He has an MA in Economics from Northeastern U. Mr.Teixeira franchise experience has included the retail, manufacturing, home health care, medical staffing and GPS fleet tracking industries. Ed has experience with international licensing in Asia, Europe, and South America and was a contributor to Forbes Magazine and is qualified by the International Center for Dispute Resolution as an international franchise expert. He is also a faculty member of LawLine.com and have Lecturer at Stony Brook University Business School on the subject of Franchising. Contact Ed at: [email protected]. Visit his website: www.franchisegrade.com

THE RESTAURANT INDUSTRY AT THE PANDEMIC’S ONE YEAR ANNIVERSARY – WHAT NOW?

Posted on March 9, 2021March 9, 2021 by Franchise Strategist

We thought that the last twelve months of performance for individual restaurant stocks might give us a hint as to where to focus going forward. Since some of the obviously large stock gains have taken place among those with the heaviest short position, we have focused on the “short interest ratio”, the number of shares sold short divided by the average daily trading volume.

THE RESTAURANT INDUSTRY AT THE PANDEMIC’S ONE YEAR ANNIVERSARY – WHAT NOW?

By Roger Lipton with permission

The last twelve months have been unprecedented, not only from a business/health standpoint, but from a fiscal/monetary standpoint. There has been more governmental stimulus as well as monetary accommodation than ever before, which has floated all kinds of boats. The Dow Industrial Average hit an all time high just this morning, and, though the NASDAQ index has retreated the last month or so, stocks from Apple to Tesla to Gamestop have written a new book in terms of valuation.

Based upon the new $1.9 trillion Covid bill, the likelihood of a new multi-trillion dollar infrastructure bill, as well as the Federal Reserve’s ongoing willingness to buy at least $120B of Treasury securities every month, there is every indication that the above trends will continue.

From a broad brush, it is shocking to see how large the moves have been from March 8, 2020 until now. It is interesting that several of the best performing “pandemic plays”, namely Domino’s, Wingstop and Papa John’s, which made very big moves over six to nine months, have retraced and are up more modestly now (zero, 56% and 47%, espectively).

This industry, by no stretch of anybody’s imagination is generally in a place that makes these companies “worth” from 50% to 90% more today than they were before the pandemic. There is somewhat less independent competition, and some companies may have learned how to serve off-premise diners better than before, but there are also a great many uncertainties. These include (1) the cost of labor with a new mix of in-store vs. off-premise (2) commodity inflation (3) other expenses to meet health requirements (4) unpredictable consumer spending (5) still substantial competition (6) ongoing high occupancy expenses, especially for new sites. There is also, in many cases, new debt to service.

Fundamentals aside: the stocks have done the following, ranked by today’s short interest ratio.

What do we see? The average gain among the fourteen stocks with the highest short interest ratio is 90%. The bottom fourteen stocks went up by 57%. Without our focus on individual company fundamentals, readers can scan the list and conclude for themselves which stock performance is most removed from the fundamental outlook.

Where do we go from here?

Before considering the above noted $1.9 trillion Covid bill and trillions more for infrastructure, the Treasury is sitting on $1.44 trillion (to be reduced to $500B by June 30th) that was returned from the Fed last year and the Fed is currently creating $120 billion per month. This means that almost $1.5 trillion of accommodation will be provided to the economy and the markets by June 30th, before the effect of the new $1.9 trillion. This also means that equities, including restaurant stocks, may well go a lot higher in the short term. There is just too much liquidity in the capital markets.

THE BOTTOM LINE

For investors: Other things equal, we would focus on the top portion of the table above. 90% is better than 57%

For companies: In almost all cases, we would sell company stock. Pay down debt and/or build your cash balance. It may be a long time before you see these valuations again.

For management: Lighten up. You can always grant yourselves some more stock options.

Roger Lipton

Click here to visit Roger’s website: https://www.liptonfinancialservices.com/2021/03/the-restaurant-industry-at-the-pandemics-one-year-anniversary-what-now/

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About Roger Lipton
Roger is an investment professional with over 4 decades of experience specializing in chain restaurants and retailers, as well as macro-economic and monetary developments. After earning a BSME from R.P.I. and MBA from Harvard, and working as an auditor with Price, Waterhouse, he began following the restaurant industry as well as the gold mining industry. While he originally followed companies such as Church’s Fried Chicken, Morrison’s Cafeterias and others, over the years he invested in companies such as Panera Bread and shorted companies such as Boston Chicken (as described in Chain Leader Magazine to the left) .

He also invested in gold mining stocks and studied the work of Harry Browne, the world famous author and economist, who predicted the 2000% move in the price of gold in the 1970s. In this regard, Roger has republished the world famous first book of Harry Browne, and offers it free with each subscription to this website.

Workplace Reopening? 5 Ways To Put Employee Safety First

Posted on March 9, 2021 by Franchise Strategist

Even with shared workstations, having dedicated sets of sanitizing tools is highly effective. Post or share clear instructions on how to sanitize and the necessary frequency. Particularly for shared workstations, it’s advisable for employees to sanitize before and after every shift.

Workplace reopening? 5 ways to put employee safety first

By (BPT) with permission.

Of all the milestones in our nation’s COVID-19 recovery, workplaces reopening is one of the biggest. As millions of people start returning to offices, classrooms and more, the hope of progress is tempered by concerns for safety. Everyone deserves to feel safe at work. How can employers help make that happen?

The key is planning ahead, says Christopher Gill, vice president of EnviroPro Solutions. “Having enough supplies, the right equipment and clear information — all of these are important. They do more than just keep the workplace safe and sanitized. They help employees feel confident about returning.”

Here are 5 easy steps employers can take to help build trust and stay safe.

Pick up plenty of PPE. The bare minimum should include disposable masks and hand sanitizer. Depending on the sanitizing steps your business is taking, gloves and goggles may also be necessary. Designate a clear responsible party who will be in charge of tracking supplies and re-ordering.

Post or share information on the supplies available, where employees can access them and who to report any shortages or concerns to.

Re-assess restrooms. Restrooms should always be well-stocked with soap, hot water and paper towels. Increase the frequency at which restrooms are checked for supplies and sanitized. This is even more important if your facility’s restrooms are open to the public.

For large restrooms, consider closing off some stalls and sinks to limit the areas that require frequent sanitizing. Placing out-of-order signs can help deter use. Post clear instructions for handwashing — it should be done for at least 30 seconds with hot water and soap.

Scale back shared spaces. Shared spaces may mean break rooms, employee kitchens, copy rooms, lobbies, supply closets or more. If any of these spaces aren’t strictly necessary, consider closing them off. This will discourage congregating and limit the areas that need frequent sanitization. For shared spaces that stay open, limit furniture and supplies to the absolute essentials. This may mean reducing seating and tables, or removing communal dishware.

It’s also vital to establish clear expectations for sanitizing shared spaces before and after every use. Prominently post and share sanitizing guidelines with all staff. Include information on where sanitizing equipment will be stored and how it can be accessed and used. To help ensure everyone follows guidelines, look for a sanitizing solution that’s fast and easy-to-use, like electrostatic sprayers from enviroprosolutions.com, made by Victory or Graco.

Sick? Stay home. Wherever possible, encourage employees to stay home or work from home if:

They are experiencing any symptoms of illness.
They suspect they may have been exposed to someone with COVID-19.
They have just returned from traveling.
There have been any changes to their household, such as a child returning from college.

The Centers for Disease Control (CDC) provides guidelines for length of self-quarantines and more in their Guidance for Businesses & Employees page.

Provide proper equipment. Empowering employees is the best strategy for building trust. When it comes to sanitization, providing individual sanitizing tools is a terrific way to empower. Some companies offer kits to keep multiple employees in-stock at once, such as the Millennium Q Viral Disinfecting Kit. When every employee has their own set of supplies, they can take full responsibility for the safety of their workspace.

After more than a year at home for some workers, returning to the workplace is an enormous step. Emotions may be running high, and it’s up to employers to set a positive example and tone. Making your dedication to safety clear and tangible will boost employee confidence, all while keeping your workforce healthy.

If you own a business, you’ve only got days left to apply for a Paycheck Protection loan

Posted on March 5, 2021March 5, 2021 by Franchise Strategist

If you own a business, you’ve only got days left to apply for a Paycheck Protection loan

(BPT) – by Jennifer Roberts, CEO, Chase Business Banking and Sean ‘Diddy’ Combs, Founder, Our Fair Share, entrepreneur and media mogul

In just four months last year, more than 5 million U.S. businesses received a Paycheck Protection Program (PPP) loan. That helped them pay their workers, their mortgage or rent, and their utility bills. Unfortunately, many small businesses owned by minorities, women and veterans didn’t get PPP loans last year. We want to make sure you know how to apply for the funding your business really needs.

But you need to act quickly. PPP ends March 31, but many lenders may stop accepting applications sooner so they have time to process. That means you need to get started on an application quickly for PPP funds to help with your payroll costs and other bills, to get your fair share. The Small Business Administration (SBA) and participating lenders are working hard to make these loans available to more businesses in low- and moderate-income communities. And to smaller businesses, like barbershops, restaurants, nail salons, clothing brands, bars, bodegas and independent contractors.

Here are eight facts you should know about PPP that may encourage you to apply:

1) Congress funded it with $284 billion for 2021. That’s enough for millions of more loans.

2) It’s for first-time borrowers. The SBA has already approved more than 704,000 loans for borrowers who didn’t get one last year. The SBA also has approved loans for second-time borrowers.

3) A PPP loan may be forgiven. Up to 100% of your loan could be forgiven if you qualify and meet the SBA’s requirements. That means you wouldn’t have to pay back the forgiven amount.

4) Businesses with few employees get special attention. Through March 9, the SBA is accepting applications only from businesses with fewer than 20 employees.

5) Most loans are relatively small. The average loan to first-time PPP borrowers this year is $22,000, the SBA says.

6) Smaller businesses are getting approved. 90% of Chase’s approved PPP loans in 2021 are to businesses with fewer than 20 employees.

7) Help is available to understand PPP. chase.com/ppp has a webinar, checklists and FAQs to walk you through the application process. You can also check out sba.gov/ppp.

8) It’s easy to find participating lenders. The SBA’s website — sba.gov/funding-programs/loans/lender-match — has a “Lender Match” link to help you connect to a lender near you.

The 2021 PPP is scheduled to expire March 31, but to get your application to the SBA by then, you need to act now. If you believe you are eligible, we urge you to find a lender, prepare your information and apply.

Get started now. Don’t miss out!

To learn more, or to access helpful tools and resources, please visit chase.com/ppp or ourfairshare.com.

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FRANCHISE YOUR BUSINESS – COLLECT ROYALTIES – CREATE LEGACY

Good News for Franchisors: New Favorable Accounting Rules Go Live!

Posted on February 20, 2021March 10, 2021 by Franchise Strategist

Good news for franchisors: New favorable accounting rules go live!
By Michael Iannuzzi
Posted with Permission from Franchise News Wire

Who said accounting was boring? For the past two-and-a-half years the International Franchise Association’s Financial Accounting Standards Board (FASB) Task Force has been working with the FASB to issue guidance to help reduce some of the cost and complexity in applying Topic 606 — revenue recognition rules over initial franchise fees. On January 28, 2021, the FASB released Accounting Standards Board Update 2021-02 to Topic 606, an “expedient” that can be adopted by non-public franchisors on their December 31, 2020 financial statements. What does this mean for non-public franchisors?

During the year-end December 31, 2019, non-public franchisors that issued their financial statements prior to the FASB issuing an election to defer Topic 606 during June 2020, were tasked with the challenge of implementing Topic 606 for the very first time by following these steps:

Step 1 – Identify the contract with a customer (in our case, a franchise agreement)
Step 2 – Identify the performance obligations in the contract (training and the right to use the license, as examples)
Step 3 – Determine the transaction price (the franchise fee paid)
Step 4 – Allocate the transaction price to the performance obligations (determine the value to be received, more on this later)
Step 5 – Satisfaction of performance obligations (delivering the service)

The current method (prior to issuance of the expedient)
The struggle for franchisors was how to identify the performance obligations in Step 2 and how to value the transaction price to be recognized as revenue in Step 4. Using pre-opening training as an example, many franchisors offer training that is specific to their brand as well as generic training, such as how to use QuickBooks. The challenge was to separate the training into brand specific vs. non-brand specific trainings (Step 2), then to come up with a value to allocate (Step 4), and ultimately recognize a portion of the initial franchise fee as revenue and record the remaining initial franchise fee as deferred revenue to be recognized over the life of the franchise agreement. This proved to be very difficult and costly for franchisors of all shapes and sizes. There were assumptions made that the entire amount of the initial franchise fee should be deferred and bypass the steps above. That’s not to say that isn’t the case; however, you would have had to do the analysis to conclude that the entire fee should be deferred and not just default to that position.

In applying the practical expedient, “pre-opening services that are consistent with those included in a predefined list within the guidance may be accounted for as distinct from the franchise license.” What does this mean? The intent was to simplify Step 2. In Step 2, non-public franchisors can now look at most of their pre-opening activities and count them as one performance obligation, meaning they are delivering an upfront service to a franchisee. This would potentially allow them to recognize more of the initial franchise fee as revenue, creating an income pickup for franchisors compared to the amount being recognized based on prior rules, as they are now allocating more of the transaction price identified in Step 4 to these costs.

Even though we are in the middle of audit and registration renewal season, these rules could prove to be beneficial for franchisors. The expedient will allow for more representative income recognition and allow franchisors to adjust their opening equity for prior franchise agreements. Careful consideration needs to be given when adopting the expedient. Most importantly, this is meant to be general advice, and franchisors should always consult with knowledgeable franchise and accounting professionals before forming any conclusions.

Michael Iannuzzi is a partner and co-leader of Citrin Cooperman’s franchise accounting and consulting practice. The company provides audit and accounting, business consulting and advisory, and tax planning services to a wide spectrum of clients within the franchise community. Iannuzzi works with franchisors and multi-unit franchisees in a variety of industries, including, but not limited to, fitness and athletic centers, children’s entertainment services such as recreational youth programs and party providers, junk removal companies, mobile concepts, pet hotels, quick service restaurants (QSRs), and grocery stores. For more information, call 212.697.1000 x 1250 or email [email protected]

10 Tips To Support Small Businesses

Posted on February 18, 2021February 18, 2021 by Franchise Strategist

“Small businesses are the heart of our country and Ball® home canning products business,” says Kris Malkoski, CEO of the Food Business Unit at Newell Brands. “We have been moved by the love our small business customers have shown their communities this past year. Still many small businesses are facing hardships and they need our support now more than ever.”

10 tips to support small businesses

By BrandPoint

(BPT) – The COVID-19 pandemic has been difficult on small businesses. Whether it’s a local eatery, service provider, retail store or another type of business, when you shop small, you’re supporting a real person who is striving to keep his or her entrepreneurial dream alive.

“Small businesses are the heart of our country and Ball^® home canning products business,” says Kris Malkoski, CEO of the Food Business Unit at Newell Brands. “We have been moved by the love our small business customers have shown their communities this past year. Still many small businesses are facing hardships and they need our support now more than ever.”

You can personally help make a difference by considering 10 simple ways to support small businesses:

Shop now: No need to wait for a sale or special event. By shopping now you’re putting much-needed funds into a small business that is depending on income each month to make ends meet and keep doors open.

Reverse shopping: Rather than thinking of the recipient and then where to shop for a gift, think of the shop first and then the recipients that would most like items from that particular business.

Go online: For small businesses that offer e-commerce options, be sure to consider online orders that ship directly to your home. This is a safe and convenient way to support your favorite businesses.

Shop in person: For businesses with physical locations, visit shops in person if you can use proper safety measures. If you know what you want, many businesses let you order ahead and opt for curbside or doorway pickup as well.

Consider gift cards: Not sure what to buy? Gift cards are always one of the most desired gifts, so if you need to send a little love to a loved one, wrap up a gift certificate in a beautiful card and feel good about your present choice.

Leave reviews: Online reviews can make a big difference for small businesses in expanding clientele. Go online and leave rave reviews for your favorite stores and why others should support them as well to help spread the word.

Be vocal: In addition to online reviews, talk up your favorite small businesses among friends. From independent restaurants to local service providers, use your voice as a powerful tool to build their reputation and support growth.

Partnerships: Look for small businesses who partner together to offer products or services that complement each other in packages, such as a gift basket bundle featuring your favorite local treats. You’ll support multiple businesses at once and often get a discount compared to buying separately.

Double up: For businesses like independent coffee shops or bakeries, consider a larger order. For example, go with that grande latte and order two dozen cookies to share with your neighbors.

Be patient: Small businesses are dealing with a multitude of challenges these days, from supply chain holdups to sluggish shipping and beyond. Your kindness is valued and your patience is crucial during these times.

“Actions big and small will help make a difference,” says Malkoski. “This is our time to give back to the businesses that help build our culture and communities, and we at Newell Brands want to give back too.”

5 Key Reasons To Franchise Your Restaurant Concept

Posted on December 21, 2020February 10, 2021 by Franchise Strategist

5 Key Reasons To Franchise A Restaurant Concept
By Gary Occhiogrosso Managing Partner – Franchise Growth Solutions

Suppose you have a proven restaurant concept with a successful business system. Think McDonald’s, Panera Bread, Applebee’s, or Halal Guys. In that case, your next move may be to open additional locations. Franchising your restaurant and awarding others’ the rights to use your brand name, recipes, and procedures is a great way to expand. Why do restaurant owners choose to franchise their business? For the most part, it comes down to capital, time, people, and geography.

Lower Investment To Grow Your Brand

You can add additional restaurants while at the same time, you minimize your capital investment. Becoming a Franchisor and using franchising as the method to grow means other individuals (franchisees) will pay a franchise fee to gain access to your brand. Also, the franchisee will fund building the restaurant and assume the location’s financial responsibility. According to Harold Kestenbaum, a Partner with Spadea Lignana Franchise Attorneys: “Building out company units can get very expensive. Having a franchisee invest their own funds not only saves the franchisor money but allows the franchisee to have skin in the game. This is crucial for the success of a franchise system.”

Exponential Growth

Building corporate restaurants is limited to your capital, human resources, and, in many cases, geography. However, when you franchise, your brand may be growing more rapidly and in multiple markets. Once ramped up, some franchisors open as many as 20, 50, or more than 100 new restaurants a year. Michael Einbinder, founding Partner of Einbinder & Dunn, states: “Franchising restaurant concepts allows for fast growth. If you expand your brand through franchising, the investment in new outlets come from franchisees. Critically, franchising gives you an opportunity to grow in multiple markets simultaneously.”

Owners vs. Employees

In many cases, the most challenging aspect of running a restaurant is; recruiting, training, and maintaining good employees. As the Franchisor, that effort rests with the franchise owner of the individual location. Unlike owning and operating corporate locations, it’s the franchisees that have “skin in the game,” and unlike employees, they usually do a better job. Also, they can’t just quit at will because they have a vested interest in the business, usually in the form of personal cash and loan commitments. Franchisor, Charles Watson, CEO of Tropical Smoothie Cafe says: “Having franchisees who are aligned with your mission and willing to invest in their own success are critical for quality growth. You may not always have the same level of commitment from employees because their work does not impact their bottom line. Dedicated franchisees are often eager to execute the new initiatives that the franchisor rolls out systemwide to their local markets, which inevitably inspires guests to keep coming back to your concept, no matter what location is nearby. The franchisee/franchisor relationship is always evolving and is typically mutually beneficial.”

Residual, Royalty-Driven Income

As a Franchisor, your income is not derived from the operation of a restaurant. The Franchisor’s primary revenue source is a royalty payment made by the franchisee to the parent company. Also, this royalty is paid on top-line sales, not bottom-line profit. As a Franchisor, your role is to help franchisees increase their sales and increase the number of operating units. When done correctly, the Franchisor benefits, and the franchisee’s chances of higher profit through better operations and broader brand recognition are increased. The general public loves and trusts “Name Brands” and can sometimes be skeptical of the one-off mom & pop operations.

Better Selling Price At Exit

Suppose you’ve built your franchise company with reliable franchisees, a tight operating model, and strict enforcement of brand standards. In that case, the chance is a potential buyer will pay a higher price based on a multiple on your profits. All too often, non-franchised restaurant owners sell their corporate-owned restaurant chain at a price based on two or three times multiple of their bottom line profit. However, many investors, particularly private equity firms, are attracted to franchise companies whose revenue is driven by royalties.

According to Michael Einbinder: “Many franchisors build their concepts with the ultimate goal of creating value in the long term for an exit. In the last several years as private equity firms have become more involved in franchising, the trend has been that the multiples paid on franchisor EBITDA are higher than on company operations.”

Investment firms are often willing to buy based on a multiple double and sometimes triple that of an independent restaurant chain. Why? Because unlike profit earned by restaurant operations, royalty driven profit is virtually endlessly scalable. Franchisors usually have a lower operating cost with less overall risk compared to corporate-owned chain restaurant companies.

Closing Thought

Although each owner has their own reasons to franchise a business, these are the key motivators why restaurant owners franchise their concept. However, franchise companies are not without unique challenges. There are numerous other considerations, such as the cost to set up and maintain legal compliance, marketing & the cost of recruiting new franchisees, franchisee relations, and developing a unique skill set as a Franchisor. We’ll cover that other side of franchising in another article.

LEARN ABOUT FRANCHISING YOUR BUSINESS, check out our website: www.franchisegrowthsolutions.com

ABOUT THE AUTHOR:
Gary Occhiogrosso is the Founder of Franchise Growth Solutions, which is a co-operative based franchise development and sales firm. Their “Coach, Mentor & Grow Program” focuses on helping Franchisors with their franchise development, strategic planning, advertising, selling franchises and guiding franchisors in raising growth capital. Gary started his career in franchising as a franchisee of Dunkin Donuts before launching the Ranch *1 Franchise program with it’s founders. He is the former President of TRUFOODS, LLC a multi brand franchisor and former COO of Desert Moon Fresh Mexican Grille. He advises several emerging and growth brands in the franchise industry. Gary was selected as “Top 25 Fast Casual Restaurant Executive in the USA” by Fast Casual Magazine and named “Top 50 CXO’s” by SmartCEO Magazine. In addition Gary is an adjunct instructor at New York University on the topics of Restaurant Concept & Business Development as well Entrepreneurship. He has published numerous articles on the topics of Franchising, Entrepreneurship, Sales and Marketing. He was also the host of the “Small Business & Franchise Show” broadcast in New York City and the founder of FranchiseMoneyMaker.com Read Less

What You Need to Consider Before Opening Your Own Restaurant

Posted on December 11, 2020February 20, 2021 by Franchise Strategist

The amount of work it takes to not only survive but also make an impact with a restaurant is massive. According to FSR Magazine, 60 percent of all restaurants fail in the first year. A restaurant that lasts for years takes humility. You must acknowledge daily how bad you are at restauranting, until one day you’re not bad anymore.

What You Need to Consider Before Opening Your Own Restaurant
The following is adapted from Unsliced.
By Mike Bausch

Opening a restaurant is a huge decision—one of the biggest decisions you’ll ever make. It’s hard work, full of risk and failure, and can be disappointing and frustrating. It can also be rewarding and fun, and if you do it correctly, can be profitable.

But you may have a 9-to-5 job right now that brings in steady income. How do you trade that for the uncertainty of the restaurant business? For most people, it’s not a trade they’re willing to make. To know whether you’re one of those people—or the type of person who should try their hand at restaurant ownership—here are few important considerations.

Two Types of People: Which One Are You?
First, look at the two statements below. Which one best fits you?

I am a person who tries hard, and the effort is what counts.
I am a person who likes setting my mind to things and accomplishing them.

At first glance, both seem like positive, motivational statements. But the second statement is actually better because the mindset is results-oriented. You’re focusing on a goal, and just trying hard and giving it an effort isn’t enough.

This means that when things get bad, you enjoy finding a way out of it. I’m pretty sure that being a glutton for punishment isn’t necessarily normal or healthy. However, it’s an essential trait of anyone looking to own their own business—especially a restaurant.

Owning a Restaurant for the Right Reasons
You may have decided to own your own restaurant hoping to become a celebrity chef. Or maybe you just don’t like your job and think owning a restaurant will be fun. If these are your reasons, then forget it. A restaurant is not the answer to your problems. It’s asking for a lot of new problems—problems you’ve never encountered or imagined.

Asking Yourself the Big Question
The restaurant life will affect your home life drastically. Restaurants sometimes destroy relationships and consume your mental health and quality of life. This life choice is a gamble—a gamble you might succeed in, in your hope to serve people food in an industry with a meager financial return rate and as I said, an extremely high failure rate.

If you haven’t committed to a restaurant yet, please pause and say this out loud:

“I need this; I need to own a restaurant. I don’t just want to own a restaurant. I absolutely need to do this. This is my calling. I got this, and nothing else will suffice.”

If that statement sounded stupid when you said it out loud, restaurant ownership isn’t for you. If you don’t believe what you said, you aren’t ready to do this. If you’ve never even operated or worked in a restaurant, then don’t assume for a second that you know anything. In fact, your best move is to concede you know nothing so you can be a blank canvas ready for paint.
Make the Best Decision for You

So what’s it going to be? Safety or risk? The same old routine or unpredictability? Don’t feel bad if you choose to opt for that cubicle job. It usually offers a lot less stress and heartbreak than opening your own restaurant. The world needs people in those office chairs.

But if you choose to be a restaurant owner, be ready for a roller coaster ride. Be ready for long days and nights, unexpected changes, and some lean times. But you knew that, or you wouldn’t have made that decision, would you?

For more advice on deciding to open a restaurant, you can find Unsliced on Amazon.

About the Author:
Mike Bausch is an industry leader whose restaurant, Andolini’s Pizzeria, is a top ten pizzeria in the US, as named by TripAdvisor, BuzzFeed, CNN, and USA Today. Andolini’s began in 2005 and has grown to five pizzerias, two gelaterias, two food hall concepts, a food truck, and a fine dining restaurant by 2019. Mike is a World Pizza Champion, a Guinness Book world record holder, and a writer for Pizza Today. Mike is part of a Marine Corps family who has lived across America from New York to California. Mike calls Tulsa home and lives with his wife, Michelle, and son, Henry.

Restaurant Marketing for the Upcoming 2021 Recovery

Posted on November 21, 2020December 9, 2020 by Franchise Strategist

Restaurant owners are infamous for being callous with their marketing decisions, this is partly because the research process in the restaurant industry itself can be quite tricky. Gathering insightful data within a small or slightly larger community will be tricky as it is. This is precisely where digital surveys, restaurant management software, etc play a huge role.

MARKETING YOUR RESTAURANT THROUGH 2020-’21
Business Articles | November 19, 2020
BY KEVIN JOSEPH

Although it may seem rather glamorous at first glance, starting a restaurant is no easy feat. In fact, the restaurant & food business, in general, is one that is extremely time-consuming, high overheads, razor-thin margins & a manager’s nightmare.

But, it is also one that is central to our society and the eating-out culture in every country is the cornerstone of its culinary heritage. This is precisely why, especially during the light of the lockdowns, restaurants, in particular, are facing a very uncertain & grim future which, if left unchecked, can turn into a disaster for the industry.

There are a few things that we as consumers can do in order to help the restaurant industry and the entire hospitality industry in general, but more than anything else, this post is aimed at a few marketing strategies that restaurants can easily adopt.

1. Understanding Their Audience

But more than anything that a machine can do, understanding what the consumers themselves experience while at the restaurant is something priceless in itself. For this, employees & busboys must be trained to ask the right questions and keep an eye out for understanding the consumer experience.

This practice is so conspicuous in its absence that several suppliers & marketing companies for restaurants have taken birth for a study that would probably best be done by the restaurant owner himself. For Instance: folks over at FurnitureRoots, a Jodhpur based manufacturer of restaurant furniture, on several occasions has recommended styling themes depending on the clientele. For a clientele that largely comprises of the youth, industrial style furniture happens to be the best option.

You may visit FurnitureRoots at Plot No 58/2, Jodhpur-Pali Highway, Sangariya, Basni Baghelao, Jodhpur, Rajasthan. 342013

Rustic style furniture is another great option for restaurants that see customers visit with their families.

2. Adapt With The Changing Times

Most non-western countries have more or less been out of the eating out trend in the past. However, many countries have seen a drastic change in this trend. Countries like India are at the forefront of these shifts in trends.

Several cafes in India have seen a rise in environmentally friendly themes. Cognizant of this fact, Prithvi Cafe in Bombay began manifesting an eco-friendly establishment replete with cups and saucers made with disposable leaves, 4 different cans for recycling different types of materials & of course, greenery all around the place.

Naturally, Prithvi Cafe did understand its market’s shifting needs and adapted to it accordingly.

3. Spatial Strategies

These happen to be the strategies that are short term in nature (hoping the pandemic won’t be around for long).

Spatial strategies during these times are to ensure that the image of the restaurant reflects trustworthiness and safety. Although this does involve a bit of mental, time & a minor cost investment, it will forever instill a sense of trust among the local & regular customers.

Spatial strategies are the ones that aim to maximize the seating area while ensuring the social distancing norms for restaurants are maintained and are intact as well. This can also include moving to temporary outdoor seating as has been advocated by several governments across the world to curb the spread of the virus.

4. Go Digital

I bet most of you must be tired of hearing this every now and then but the fact remains that the digital landscape is no longer some sort of a novel initiative that one must undertake. It has become the staple of a business and several businesses are almost exclusively reliant on their digital strategies.

For restaurants, however, this does not mean simply enlisting themselves on food aggregating platforms. Several restaurants suffer from a lack of long term thinking, they fail to realize that the aggregating platforms own the customers and not the restaurants themselves.

Making an app or a website nowadays has become a complete breeze & it is also a sound business practice. Small wonder that Dominos, Burger KindHealth Fitness Articles, Mcdonalds have all invested heavily on their own platform to ensure loyal customers don’t have to purchase from them via a third party.

This is no less true for any other restaurant.

We hope all businesses in hospitality a speedy recovery after this dreaded misfortune of a virus.

Stay Safe!

Source: Free Articles from ArticlesFactory.com

ABOUT THE AUTHOR

Kevin is the Marketing & Content Lead at FurnitureRoots.com, a hospitality furniture manufacturer, supplier & wholesaler

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