A Guide to Buying a Restaurant Franchise
The secret for a long lasting restaurant franchise is knowing when and how much to buy it. If you are interested in buying a restaurant franchise, you can gain some useful information below.
If you want to know how a business is faring, you can find it in the books and records. If you want a restaurant that will last you for years, then buy an established restaurant with repeated years of earnings. If you are looking into a restaurant franchise that has good training or a good brand, by all means follow your dreams but be careful to consider the important things if you really want to make money out of it.
The following will describe the first three years of a franchise. One buys a franchise because of its potential and the new owner gets excited to build it from scratch. A new restaurant franchise can easily cost hundreds of thousands of dollars. Because of his eagerness, the new owner is sure that he is on his way to make millions. However, after a simple review of the math, it shows that fees and rent kick in before he buys the food and services his first customers at a very low average price. He ends with a tough first year and then calls a restaurant broker to sell the franchise. He realizes that it is a money losing operation and he can only get back a fourth on his investment. And this is only if he has a good franchise concept and a strong site.
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This losing franchise will be picked up by a smart restaurant owner to become its second owner. This second owner might still be losing but he acquired the franchise at a much lower cost. This second owner, by working hard himself, will be able to keep up his sales to match the fixed costs and start earning money. The second owner also realizes that after a time earning, his earning are no worth the time and the efforts so he ends up selling the franchise again.
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The earnings of the franchise has value and the third franchise owner gets the deal with this value. This third buyer now has the real opportunity because the sales cycle already has matured and all costs are covered. Sales are growing and the business is profitable. The cost of capital for buyer number three is minimal and the business can easily service the debt. The rules of three is important in buying franchise restaurants.
It is the third restaurant owner who usually reaps the benefits and now the first two.
Buy a franchise on its third year of operation because sales are still trending up and the restaurant is making money.