| What are the odds of building a successful | | | | the franchise and becomes owner number too. |
| restaurant franchise from the ground up and | | | | This owner may still be losing money but he only |
| lasting three years? According to a hospitality | | | | paid around $100,000 so his cost to acquire is |
| management professor who studied restaurant | | | | much lower. By year two his sales are beginning |
| failures, it is less than 40%. A professor at Ohio | | | | to keep pace with his fixed costs. By working |
| State University authored a study that found | | | | hard at the business and operating it himself, he |
| 57% of all newly opened franchises will not | | | | can probably go from losing to making money. By |
| survive beyond the three year mark. That is only | | | | the way, both owners have paid the franchise |
| slightly better than independent restaurants that | | | | fees the entire time even while they lost money. |
| experience a failure rate of 61%. Does this mean | | | | Another year into the business, this smart buyer |
| you should avoid restaurants altogether? No. A | | | | realizes he may not have such a great deal after |
| franchise restaurant can represent a great value | | | | all. He may be operating in the black but when he |
| if you know when to buy and how much to pay. | | | | adds up the time in the business against his |
| This article will teach you with our three rules for | | | | return, he is making less than the federal |
| franchise restaurant buyers. | | | | minimum wage. He calls a restaurant broker to sell |
| The books and records of an established business | | | | the business. By this point, sales have developed |
| tell the true picture of its earnings. If you want a | | | | to the point that all fixed costs are covered. With |
| restaurant that has beaten the odds of surviving | | | | add backs, he is only earning $35,000 or so a |
| three years, buy an established restaurant with | | | | year. |
| repeated years of earnings. If a franchise | | | | This is when the franchise restaurant buyer hits |
| interests you because of the training or the | | | | his stride and gets the deal. The franchise is now |
| brand, than by all means pursue your dream but | | | | valued on earnings, not hype. The sales cycle has |
| do it with our three rules if you want to make | | | | matured and all costs are covered. Buyer number |
| money. | | | | three has a real opportunity in his hands. He owns |
| The first three years of a franchise often look | | | | a good product in the franchise brand. Sales are |
| like this. A new owner learns of a concept and is | | | | still growing and the business is profitable. Since |
| instantly excited about the potential and ready to | | | | buyer number three paid appropriately, the cost |
| build from scratch. A new restaurant franchise | | | | of capital is minimal and the business can easily |
| can easily cost the new franchisee $350,000 or | | | | service the debt. While the first two buyers are |
| more. Eager to experience his own restaurant | | | | telling their friends why they would never buy a |
| franchise success, the franchise restaurant owner | | | | franchise, the new owner has never been happier. |
| is sure that he is on the way to making millions. A | | | | This business cycle of the franchise restaurant |
| simple review of the math however shows that | | | | ownership demonstrates why buyers follow our |
| with franchise fees of 8%, marketing fees of | | | | Rules of Three in Buying Franchise Restaurants. |
| 2%, and rent of 15% all kick in before he buys | | | | #1 Franchise restaurant buyers never want to be |
| the food and serves his first chicken wing and | | | | first or second to own the restaurant. Owner |
| beer at an average check price of $8.00. After a | | | | number three reaps the benefits. |
| tough first year he calls a restaurant broker to | | | | #2 Buy close to the start of year three for the |
| sell the franchise restaurant. He is not too happy | | | | best opportunity. Sales are still trending up and the |
| to learn that with a money losing operation, the | | | | restaurant is making money. Best of all, there is |
| most he can expect is about 25% of what he | | | | still opportunity. |
| has invested or about $125,000. That pricing is | | | | #3 Never, ever pay more than three times |
| only if he has a good franchise concept and a | | | | earnings no matter how great a pitch you get |
| strong site. | | | | from the franchise or the owner. Opportunity is a |
| A smart restaurant buyer picks up the pieces of | | | | lottery ticket but none of us like the odds. |