When I asked one of my original investors why he had numerous Applebee franchises, his reply made more sense to me after I sold my restaurants than it did while I was building them.
"So I don't have to eat in them," he said. His response contained a very important message. However, at the time my ego was an ingredient in every design and I didn't understand the point of his answer.
I continued to open single unit concepts and built a small group of independent restaurants that successfully struggled to become profitable. None of them were fantastic ideas that could be rolled out or duplicated easily, and each had its own identity.That's a serious problem in the multi-unit business. And although my last concept may have morphed into a multi-market rollout, I decided not to take the next step.
If I were looking for profits rather than accolades, I would have taken a small core of restaurants, developed culinary creativity, and then moved on to expand my group through the use of franchises. Not only would I have learned the business more rapidly, the profits from the franchises may have fed my creative concept's hunger for cash.
In any case, if you are considering raising capital in order to expand your restaurant empire, you may have a better opportunity of securing financing if you have a concept worthy of franchising or if you opt to add a franchise to your group. That was the message broadcast during a recent restaurant executive panel discussion at the National Restaurant Show.
The panel consisted of restaurant executives and private equity firm representatives who discussed their involvement with franchises and restaurateurs.
Steve Romaniello, managing director of Roark Capital Group of Atlanta, is the perfect example of a highly-involved private equity partner. Roark has invested in numerous franchised multi-unit retail concepts including a variety of restaurant brands. Auntie Anne's, Moe's Southwest Grill, Wingstop Restaurants, Inc. and McAlister's Deli make up a portion of Roark's portfolio.
So, how do you raise capital if you don't own a franchise? The answer may be simplier than you think: When thinking of expanding, expand in the franchise market.
In analyzing the market, you don't have to be a culinary school graduate with an MBA from Harvard Business School to see franchise concepts are growing rapidly and are one of the most successful, profitable sectors of the restaurant industry.
Franchises, although not everyone's cup of tea (tea franchises are hot right now in some markets), make a perfect proposition for profitability and professionalism. Here are 10 tips on why franchising may be right for you.
1) Investment and costs are both well defined, and with a reputable company there are few surprises.
2) The creative guessing game – although an enjoyable part of building a restaurant – has already been done by professionals.
3) Statistical marketing and customer preference data is readily available and takes the guesswork out of the business.
4) Systems and procedures are already developed. There are two businesses in the restaurant business: running the restaurant and running the business. Franchise opportunities already have the business operation tools in place.
5) Training both for yourself and your staff is not only part of the purchase agreement in most franchise opportunities, it is mandatory. It eliminates the customer service mysteries.
6) You have a guide, a mentor, and a professional that you can turn to for advice.
7) Brand recognition is already established.
8) Formulas for success have been tested and either work or they are replaced with systems that do work.
9) Advertising is done on a regional basis, producing more bang for the buck.
10) Franchise restaurants allow for profitability, because of strict bookkeeping and accounting procedures. Plus, many franchises are easier to sell when you decide to liquidate.