How can I sell one of my restaurants as a franchise?
By: Bill Wortman
I own 2 restaurants under a single LLC. They are two locations under the same name and operating model. I want to sell one of them as a ‘franchise.’ What would I need to do? I need to find contract documents and whatever additional information may be required to enable the transaction. I lease the space where the restaurant is located. Can you help me?
Answer:
1. Franchising: As discussed in the information below, franchising a business can be very expensive. If you are planning to sell more franchises, then franchising your restaurant concept will be a consideration. However, if you are not planning to expand your restaurant business beyond the two current locations, then a form of partnership or other business structure may be a consideration with your lawyer rather than establishing a franchise system.
Who Usually Franchises: Franchising is a method often used to expand a business concept into larger geographic markets more quickly than a business owner could accomplish on their own; however, it is a significant, complex, and usually expensive undertaking and there are major competitors in many industries. For example, the initial and ongoing operational costs can be significant for franchise businesses (over $100,000) depending upon the number of states, franchisee management and support, and other complexities.
Also, franchising a business concept or idea is generally a much more difficult proposition than franchising a profitable operating enterprise, even if only in a single city or geographic market. Since historical figures are the best predicator of the future, all franchisees look for a stable and profitable track record in the franchisor’s business.
In some cases, business expansion can be legally structured as trademark or other form of licensing, which is typically less complex than franchising; therefore, operating the second location, or others, owned by you (with or without partners), or under a license or some other business arrangement, may be considerations to expand your concept in order to test and demonstrate whether franchising is feasible. While some franchise systems are implemented with just one or two successful location, or other minimal in-market experience and results, others require local or regional development of the concept before franchising.
Also, independent consumer research can be effective to demonstrate the potential consumer demand for a new product or service. Another consideration is evaluating yourself as a potential franchisor. As a franchiser, you will be an educator, trainer, psychologist and perpetual hand-holder to your franchisees, which isn’t for everyone.
Planning: The implementation of a franchise system requires thorough planning and capital investment. Franchising involves government regulations; training and operations support staff, and possibly marketing, site selection and real estate resources. Laws vary, but typically a franchisor is required to have a minimum amount of working capital, an operations manual, a plan for franchisee training and support, and an approved Uniform Franchise Offering Circular (UFOC).
2. Business licensing: You can review discussions on the differences between franchising and licensing at websites like the following:
Example franchises to compare:
1. Franchising: As discussed in the information below, franchising a business can be very expensive. If you are planning to sell more franchises, then franchising your restaurant concept will be a consideration. However, if you are not planning to expand your restaurant business beyond the two current locations, then a form of partnership or other business structure may be a consideration with your lawyer rather than establishing a franchise system.
Who Usually Franchises: Franchising is a method often used to expand a business concept into larger geographic markets more quickly than a business owner could accomplish on their own; however, it is a significant, complex, and usually expensive undertaking and there are major competitors in many industries. For example, the initial and ongoing operational costs can be significant for franchise businesses (over $100,000) depending upon the number of states, franchisee management and support, and other complexities.
Also, franchising a business concept or idea is generally a much more difficult proposition than franchising a profitable operating enterprise, even if only in a single city or geographic market. Since historical figures are the best predicator of the future, all franchisees look for a stable and profitable track record in the franchisor’s business.
In some cases, business expansion can be legally structured as trademark or other form of licensing, which is typically less complex than franchising; therefore, operating the second location, or others, owned by you (with or without partners), or under a license or some other business arrangement, may be considerations to expand your concept in order to test and demonstrate whether franchising is feasible. While some franchise systems are implemented with just one or two successful location, or other minimal in-market experience and results, others require local or regional development of the concept before franchising.
Also, independent consumer research can be effective to demonstrate the potential consumer demand for a new product or service. Another consideration is evaluating yourself as a potential franchisor. As a franchiser, you will be an educator, trainer, psychologist and perpetual hand-holder to your franchisees, which isn’t for everyone.
Planning: The implementation of a franchise system requires thorough planning and capital investment. Franchising involves government regulations; training and operations support staff, and possibly marketing, site selection and real estate resources. Laws vary, but typically a franchisor is required to have a minimum amount of working capital, an operations manual, a plan for franchisee training and support, and an approved Uniform Franchise Offering Circular (UFOC).
2. Business licensing: You can review discussions on the differences between franchising and licensing at websites like the following:
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