3 reasons not to invest in a restaurant franchise
A lot of people seem to be buying a restaurant franchise right now, which always happens after a recession. People are losing their jobs. They are fed up with not having control over their own destiny, and they are saving money and investing in a hot growth concept.
The franchise has made many millionaires. Step into the right concept with the right attitude and a corporate refugee can make a good living and have an asset that they can potentially pass on to the next generation. Restaurants aren’t going away either and the next two years could be good for the industry.
But restaurant franchise investors can lose it all, too. Many concepts that emerge after recessions end with equally steep declines, leaving franchisees with nothing for their investment and hard work.
So during some publications give you reasons to invest in a restaurant franchise, I’m here to give you some reasons why you shouldn’t.
You take a lot of the risk
In a franchise, it is the franchisee who assumes the risk. They put money, usually in heavy debt, into building and opening the restaurant. If that restaurant fails, that investment is lost. Worse yet, if they took out a government guaranteed loan, they probably had to pledge their house as collateral. Many franchisees end up losing their homes.
The collapse of Quiznos was a perfect example of what can happen. Thousands of people invested their savings in this brand, eventually closing their restaurants and leaving. Something similar is happening at Subway, where 1,800 locations closed last year.
Franchising restaurants is also a lot riskier than a lot of people would like you to believe. While the business can be a safe bet if you can get into one of the bigger franchises, like a McDonald’s or a Taco Bell or a Panera Bread, good luck getting into one. You can sign up for a Chick-fil-A, which is a great deal, but you’re more likely to get into Harvard.
The franchises that have come up are no less risky than just starting your own restaurant. A lot of people forget about this when buying a franchise.
You don’t have as much control as you think
Many franchise arguments proclaim that an operator can “be their own boss” by operating a franchise and in many ways that is true. Franchisees control a large part of their business. But franchisees are often subject to the requirements of the franchisor.
Franchisors may demand value offers that may not be so profitable. They may require renovations, citing the franchise agreement, even when the franchise cannot necessarily afford it. They have considerable control over the selling process, sometimes deciding who can and cannot buy a location. Franchisors have been known to terminate franchisees for small issues because they prefer stores to be hijacked in the hands of different operators or because the franchisee has spoken out or been part of a lawsuit.
Or, the franchisor could decide to shift marketing in a way that devastates your restaurant, whether locally or as a whole. Many Applebee restaurants closed years ago after that chain’s fateful decision to start marketing hand-cut steaks.
Simply put, you can be your own boss, but you are limited in what you can do and are at the mercy of the franchisor in many cases.
It’s a lot of work
If you buy just one franchise restaurant, you are buying a job. It’s hard work with long hours, many weekends and a lot of stress.
Running your own business is always a lot of work. This is especially true in a restaurant which is typically open seven days a week, all day. So restaurant franchisees end up working long hours, often covering up a shortage of staff, especially in these days when it is difficult to have enough workers. Keep in mind that working in a restaurant can be exhausting and difficult, which is a big reason why it is difficult to find employees.
So, in summary: go ahead and buy this restaurant franchise. They can be great businesses for people who make a prudent decision and bring in experts who know what to look for.
But understand what you’re getting into: By buying a restaurant franchise, you are buying hard work with long hours that could cost you everything if it fails, which can often happen if the franchisor makes the wrong decision.