how to finance a franchise restaurant

Six Ways to Finance a Restaurant Franchise

Full Answer

How to finance a franchise restaurant?

What Is A Franchise And Why Would You Want To Buy Into One?

• Talk To The Manager. First and foremost, we recommend discussing financing directly with the franchisor. ...
• A Trip To The Bank. Another trusty option is a good old loan from the bank. ...
• Resort Lenders. ...
• Friends And Family. ...

Should you buy a restaurant franchise?

When you buy a franchise, you get the right to use the name, logo, and products of a larger brand. You’ll also get to benefit from brand recognition, promotions, and marketing. But, it also means you have to follow rules from the larger brand about how you run your business.

How to get financing for a new restaurant?

In this section we’ll cover how to get money to open a restaurant as a new restaurateur, including:

• Family and friends
• Online lenders and SBA-guaranteed loans
• Grants
• Food incubators
• Investors
• Crowdfunding
• Banks and traditional small business loans (a.k.a. your last resort)

What to know about financing your first franchise?

Here are three items to check off your list as you consider financing your first franchise:

1. Create a business plan. Any financial institution will want to know what your plan is to launch and grow a franchise. ...
2. Gather your financial information. Anybody involved in the financials of your business plan will want to determine how you manage your personal financial information. ...
3. Boost your personal credit score. ...

How do you get financing for a franchise?

Options for funding a franchiseFranchisor financing. ... Commercial bank loans. ... Small Business Association (SBA) loans. ... Alternative lenders. ... Personal assets. ... Rollovers as business startup (ROBS) ... Crowdfunding. ... Friends and family.

How much money does it take to franchise a restaurant?

While buying a franchise can cost anywhere from $50,000 to $6 million, most startup investments for franchise restaurants start in the $200,000 to $300,000 range. You might not be allowed to borrow funds to cover these startup costs. Some franchisors require unborrowed funds and a minimum net worth for approval.

What credit score is needed for a franchise?

680 or higherSome franchise requirements to take into consideration may include: Credit score. Minimum credit scores vary by franchisor, but most consider a grade of 680 or higher as ideal.

Is owning a franchise restaurant profitable?

They assume food franchise owners are the biggest moneymakers, but according to a Franchise Business Review report, 51.5 percent of food franchises earn profits of less than $50,000 a year and only about 7 percent of food franchises have profits over $250,000.

What is the most profitable franchise?

Most Profitable FranchisesDunkin'7-Eleven.Planet Fitness.JAN-PRO.Taco Bell.Orangetheory Fitness.Great Clips.Mac Tools.More items...•

What food franchise makes the most money?

Here are our picks for the top three full-service restaurant franchises....The Most Profitable Food Franchise Opportunities in 2022 (Full-Service Restaurants)East Coast Wings + Grill. Type: Full-service wing restaurant. ... Another Broken Egg Cafe. ... Taziki's Mediterranean Cafe.

How do franchise owners get paid?

How do franchise owners get paid? Franchise owners can pay themselves a salary or depending on their business entity, they may be able to take a draw from their accumulated equity.

What are the disadvantages of franchising?

Buying a franchise means entering into a formal agreement with your franchisor. Franchise agreements dictate how you run the business, so there may be little room for creativity. There are usually restrictions on where you operate, the products you sell and the suppliers you use.

How much do franchise owners make?

When researchers accounted for the inflations caused by the few top franchises, it was established that the average annual income of 51 percent of franchisees is less than 50,000 dollars. The study also found that only 7 percent of franchise owners earn over 250,000 dollars a year.

What is the failure rate for a franchise?

Coincidentally when I was with NatWest I managed the survey for the last 22 years. Pretty much every year the survey has been conducted has shown between 8-12% of franchise businesses left their franchise each year. This is for a variety of reasons, including retirement, selling, ill-health and financial failure.

Do franchise owners have to work?

Owning a franchise unit can be demanding, requiring work of 60 to 70 hours a week, but owners have the satisfaction of knowing that their business's success is a result of their own hard work. Some people look for franchise opportunities that are less demanding and may only require a part-time commitment.

Is owning a franchise passive income?

Using the definition above, yes, a franchise can definitely be passive income! In fact, many franchises are set up with the goal of passive income in mind. That's why some franchisees end up owning multiple locations of the same franchise, with a separate staff and minimal oversight to run each one.

What is the McDonald's franchise fee?

$45,000McDonald's Franchise Cost / Initial Investment / Income Most McDonald's owner/operators have entered the corporation by purchasing an existing restaurant. To open a McDonald's franchise, however, requires a total investment of $1-$2.2 million, with liquid capital available of $750,000. The franchise fee is $45,000.

How much does a restaurant franchise owner make?

Franchise owner salary range? The average annual salary for a franchise owner in the restaurant industry is $82,000. This number is quite impressive considering that the range of salaries for a non-franchise owner of a restaurant can be anywhere from $24,000 to $155,000.

How much does it cost to franchise a McDonald's?

McDonald's franchisee applicants must have a minimum of $500,000 available in liquid assets and pay a $45,000 franchise fee. Those looking to launch a new McDonald's franchise can expect to shell out between $1,314,500 and $2,306,500. Existing franchise prices can cost upwards of $1 million or more.

What is the cost of a Starbucks franchise?

What are the Financial requirements for a Starbucks licensed store? You need to pay the licensing fee of between $50,000 – $315,000 and you must have over $1,000,000 in liquid assets to be considered for a licensed store by Starbucks.

Why start a restaurant franchise?

Many people enjoy spending time with others while dining on tasty food. Also, nearly half of American adults view dining out as an essential part of their lives, and 64% of adults eat out at least once per week.

Why do people invest in franchises?

People invest in a franchise because it is a turnkey operation. New franchisees expect to receive successful business out of the box. Your restaurant needs to be this model.

What training do franchisees need?

Headquarters training: Franchisees will need to visit your location to learn the basics. Most training programs will include classroom teaching to grasp company culture and history, operations, and reporting. It should also include hands-on training in a mock restaurant

What is franchise ready?

A franchise comes ready to go out of the box — that is one of its most appealing qualities. You will need to put in the effort to account for all aspects of your business before starting new locations.

How many franchises failed between 1991 and 2010?

The Small Business Administration found that nearly 17% of franchises failed between 1991 and 2010. Are you confident that you know how to franchise a restaurant?

Why do you need to empower your franchisees?

But at the same time, you will need to empower your franchisees so that they can handle online concerns specific to their restaurant. Your franchise business model needs to include tactics and community management.

What happens if you don't have proper documentation for a restaurant?

Without proper documentation, you can end up in dispute or lose the rights to certain aspects of your business.

What to do if you invest in a franchise that is not likely to survive in upcoming years?

If you invest in a franchise that is not likely to survive in upcoming years, you set yourself up for failure. With this being said, conducting market research is essential. Use online resources to determine which types of franchises are projected to prevail in the present and the future.

How long do you have to send a franchise agreement before a decision is made?

After all, the U.S. Federal Trade Commission requires franchisors to send prospective franchisees their agreements a minimum of two weeks before a decision needs to be made. Examine the restaurant franchise disclosure document carefully to avoid signing off on unfair terms.

Why do entrepreneurs hire financial advisors?

Because these types of information are usually rather difficult to understand, most entrepreneurs hire financial advisors to assist them during the franchise agreement review process. You will have plenty of time to find professional assistance.

Do franchisors supply franchisees with rules?

Most franchisors supply their new franchisees with rules, regulations and recommendations for locations. While they may seem unfair at times, keep in mind that your franchisor wants you to succeed as much as you do. Thus, they will assist you in choosing the perfect franchise location for your new restaurant.

Do franchises require entrepreneurs?

Unlike regular startups, franchises do not require entrepreneurs like yourself to start from the ground up. Instead, you can take advantage of a well-established company’s name and also take on an entrepreneurial adventure simultaneously. Moreover, there is a wide range of industries you can go into as a prospective franchisee.