Benefits & Drawbacks to Purchasing a Fast Food Franchise

Kentucky Fried Chicken. CiCi's Pizza. Taco Bell. What do these three fast food restaurants have in common? They all offer franchises to people who are interested in opening a new restaurant. They each serve different types of foods and the franchise requirements are slightly dissimilar, but the experiences of three franchisees are surprisingly alike.

First, all three franchises are extremely popular in Texas and other parts of the country. You can find them on every major street--sometimes more than one--and they all have a built-in clientèle who already recognize the names.

Opening a franchise restaurant, however, isn't as simple as choosing a well-known brand that is sure to attract customers. In fact, many franchises fail within the first five years due to poor management and poor choices. When you decide to purchase a fast food franchise, it's important to consider all of the possibilities and make informed decisions.

"The investment is the most difficult thing," says Kayla Evans, the owner of a CiCi's Pizza franchise in Houston, Texas. "The bigger restaurants require you to have at least $1 million in liquidity and a total net worth of more than $100 million." This isn't true for smaller franchises, which can sometimes be purchased for as little as $5,000, but the profit margin isn't nearly as high.

There is an application process that must be observed before you purchase a fast food franchise, which usually includes a close examination of your financial and credit history, as well as your employment background. Professionals who have worked in a customer service capacity, or a supervisory position in customer service, are often best-suited for restaurant franchises. Not only will you own the restaurant, but you will be responsible for its success or failure.

When you decide to purchase a fast food franchise, it is important to look at more than just the name that will appear on the front of your building. "Location is the most important thing," says Renata Gonzalez, the proprietor of a KFC franchise in Katy, Texas. "If you don't have a good location, it won't matter how popular your restaurant is, and your investment will go downhill from there." Gonzalez chose a strip center near I-10 where locals as well as travelers would be likely to notice the restaurant.

Ronald Wyndham has similar advice for people who are considering a fast food franchise, but adds that his three Taco Bell restaurants perform differently according to demographics. "One of my restaurants is in a fairly new part of town where lots of construction is going on. We have a spectacular lunch rush from the construction workers who come in for tacos. Another restaurant does comparatively poorly during lunch, but thrives at dinner time because there are lots of families with young children nearby who come in for a quick bite after work."

In addition to finding a great location and examining the demographics of the surrounding areas, you must also know how to attract customers through customer service, advertising and word-of-mouth. "If you can't bring in hungry people, your restaurant will fail no matter how good the food is," claims Gonzalez, who greets each of her customers individually and personally oversees any problems or complaints.

A fast food franchise is an investment in your future. When you put in the time and effort to encourage its success, the profits are virtually unlimited. In fact, many restaurant franchise owners purchase several restaurant in a few connecting cities to maximize their income potential. "It's kind of like tattoos," says Wyndham. "Once you have one, you want another, then another."

If you're thinking about purchasing a fast food restaurant, keep these tips in mind:

Get the information up front

Don't hesitate to ask lots of questions. To make sure you get them all answered, make a list before you meet with your contact at the fast food enterprise and leave space to write down the answers.

Examine your own finances

The fast food restaurant will take a long look into your financials, but get the information before you submit your application. Find out if there will be any surprises in your credit file and see how your investments are doing.

Talk to other franchisees

The most honest information you'll ever get about a fast food franchise is from the other owners, says Wyndham. Ask for a list of other owners in your area and set up meetings with them. Find out about their experiences and specifically ask if they'd recommend you do the same thing.