Building Out a Franchised Restaurant? Involve an Architect Early

Becoming a franchise owner offers many advantages over starting a business from scratch, but there are plenty of factors that will determine the success or failure of your restaurant.

Do you spend so much time in your favorite, well-known restaurant chain that you've considered "Maybe I should open one of these?" There are franchise restaurants in every town, so it can't be that hard, right? Or maybe you've always had an entrepreneurial itch and becoming a first time franchise restaurant owner is the perfect way to dip your toe in the entrepreneurial waters. 

Once you make your dream of owning a restaurant a reality and you sign the dotted line, enjoy a celebratory drink—but then it's time to get to business. This means involving the right experts early on to ensure your project will be successful. As an architect, I see it happen all too often, where new franchisees are unaware of common pitfalls and challenges until it's too late. This is why I'm providing a 101 on how to successfully build-out a franchise restaurant.

Franchises, Explained

A franchise restaurant is a business where owners grant third-party operators the right to use the business's name, model, and branding in exchange for fees or royalties and ongoing support in the form of marketing, structure, resources, and training. Franchise restaurants are the McDonald's, Arby's, Taco Bells, Dominos and Chick-Fil-A's, among others, of the world. There are more than 200,000 quick-service restaurants in the United States.

The level of involvement from the franchisor, costs, and overall franchising process varies by chain but it will certainly involve many steps. An independent restaurant differs from a franchise because it is not associated with any corporate chain and is 100% run by the owner. The restaurant owner has all decision-making authority over all of the restaurant's operations.

Image credit: @omlstw and TheSmartLocal

Benefits of Buying a Franchise Restaurant

The prospect of starting a restaurant can be daunting. Especially when you're faced with sobering stats such as 60% of restaurants do not make it past their first year and 80% go out of business within 5 years, according to FSR magazine. With a franchise restaurant, though, you're provided the benefit of an established brand, working system, and business strategy. It makes it 'easier' and faster to get started. Take advantage of the support offered by the franchisor.

Knowing What to Expect

When opening your first franchise restaurant, your head will spin with questions and worries about the unknowns. By familiarizing yourself with the process before getting started, you can rest a bit easier. Here is what you can expect along with some advice to boot.

1. Talk to Others Who've Walked in Your Shoes

Not only should you take advantage of the support offered by the franchisor, but you should talk to others in your shoes. This includes recent and veteran franchisees—and both successful and unsuccessful, to get both perspectives. Ask them questions such as:

• What were some of your successes?
• What were some of your challenges or failures? Did you overcome them? If so, how?
• What do you think caused failure (e.g., location, marketing, restaurant design, etc.?)
• If you could do it all over again, knowing what you now know, what would you do differently?

Learning tips, tricks and tidbits from others who've gone through the same process on which you're about to embark will open your eyes to potential pitfalls and problems.

      2. Bring on an Architect Early

Now that you've talked to some other franchisees who've gone through the process, you should engage an architect early. Early, as in very early, so you’re protected. At M Ramseur & Associates, PLLC, we often find first-time restaurant owners are most likely to run into unplanned, unexpected and—worse yet—unbudgeted obstacles during design, permitting, and construction.

After you've selected a franchise and located a plot of land for a new building or a space in which to build-out, consult an architect before you sign the dotted line. An architect will work with you through the development and entitlement process, or what it will take to get a site approved by the city or municipality. This has a huge impact on your restaurant design, including anything from the location of the building on the site to parking, landscaping, the drive-thru, size of the building, and signage.

Photo Credit: Guillermo Sadir

Guillermo Sadir echoes the importance of having an architect on your side. Sadir is a former Director of Franchisee Operations and Development for Dominos and has developed over 100 franchisees and supported the opening of more than 1,000
restaurants.

“I always had an architect as part of my team—both on the franchisee and franchisor side,” said Sadir. “An architect experienced in restaurant operational flow will help the buildout, especially those that are not cookie-cutter. If you have a franchise that occupies existing locations, you will face lighting, plumbing, and flow issues, which an architect can incorporate in the design and location of equipment, cabinets, etc.”

The devil is in the details but, fortunately, architects are experienced at uncovering and identifying potential concerns that are often unapparent to the first-time franchisee.

   3. Have a realistic and attainable schedule

Now that you've found an architect-approved space or site, your architect will also help you determine a realistic schedule for the design, permitting, and construction of the restaurant. Keep in mind the incentives provided to tenants by landlords may sound generous but they're rarely enough time to get the space built and ready to open. Ninety days may sound like a long time, and it can be feasible to get a restaurant up and running, but that is only if you have everything in place and the contractor is ready to go on day one.

Sadir also reiterated the importance of having a realistic schedule and remaining patient throughout the process.

“As your first buildout, you are eager to open,” said Sadir. “You will also be eager to pay extra to speed up the process, you’ll get stressed with delays and think the project is dead before opening. Relax, breathe and do not get bullied by the contractor. If you paid for the service and there is a problem, they need to find a solution. Expect delays and have a plan to move hiring, training, product delivery, opening, etc. until a realistic opening time is set.”

You’ll also likely face plenty of circumstances out of your control, like the weather.

“It is very common for weather to delay a buildout,” said Sadir. “Rain, wind and heat—not to mention equipment that never shows up, shortage in floor tiles, or permits that were not issued on time. Be prepared to delay a planned opening one to two months from original opening date.”

Everything takes time—long-lead items, unexpected issues, delays caused by weather, labor shortage, material shortages, the permitting process and so on. Plan accordingly.

   4. Design for both now and in the future

 Work with your architect to develop a space that is suitable to your budget and accommodates your needs, both now and in the future. The COVID-19 pandemic has created a "new normal," which has forced restaurants to reimagine the brick and-
mortar experience. With drive-thru visits and to-go and delivery orders rapidly increasing throughout the pandemic, many restaurants anticipate consumer behavior will permanently shift to predominantly to-go and delivery. Some of the trends we're seeing include:

• Restaurants expecting drive-thrus to become more common in the post-pandemic world, which is why they're expanding the technology at new concepts. For instance, in the near-term future, we'll likely see enhanced drive-thrus with voice recognition, facial recognition and license-plate readers.
• Others, like one Applebee's franchisee, are retrofitting a drive-thru pickup window to an existing restaurant, where customers can pick up mobile orders.
• Del Taco released a prototype emphasizing off-premise channels, including third-party pickup stations and drive-thru lanes for mobile orders and delivery driver pickups.
• Increased focus on curbside technology, such as customers clicking their smartphone to alert the restaurant they’ve arrived or, in some cases, using geofencing.

The pandemic has accelerated the pace of design rollouts in the quick-service restaurant segment, which is yet another reason to consult an architect.

   5. Select Your Contractor

 Now that your design is set, it's time to build your space. That means selecting a contractor, negotiating the construction costs, and constructing the restaurant. Make sure you choose a general contractor who has experience building restaurants, specifically. Restaurants are more complex than homes or retail stores, so you’ll want someone who is experienced and knows exactly what to expect.

I frequently advise first-time franchisee owners to receive three different quotes from contractors, at minimum, to compare and contrast. When speaking with contractors, here are some key questions you may want to ask:

• What is your specific restaurant experience?
• When can you start the project?
• How long do you expect the construction to take?
• What is the construction schedule?
• What may happen that would impact this schedule?
• Will you use any subcontractors?
• Do you know of any product lead times that may need to be ordered early?

Make sure you choose a contractor who is an expert at managing restaurant buildouts to keep the project on schedule and the costs managed.

   6. Speaking of Costs…Understand All Costs Involved

Similar to starting any business, there are many costs involved to get your franchise restaurant up and running. Make sure you understand all costs involved upfront. Some of the most commonly overlooked and underestimated fees to start a restaurant include:

Legal Fees

Opening a franchised restaurant means you're negotiating and signing multiple contracts. You will want an attorney to review and advise you so you know what you’re signing. Some of the contracts you're likely looking at include:

• Franchise contract
• Contract/lease for the space
• Contract with an architect
• Contract with a general contractor
• Contracts/leases for equipment and services

Franchise Fee

This is a flat cost you'll pay upfront to operate the franchise. Depending on the franchise, this can range anywhere from $10,000 (Chick-fil-A) to $50,000 (Wendy's) or more. This is in addition to ongoing monthly fees for royalties, advertising and other services that can add up to more than 10% of gross sales.

Real Estate

Your architect and franchisor can provide recommendations for location types and advise which is best for your restaurant. Some franchises have specific requirements for their locations, such as a certain number of square feet or on-site parking requirements. As they say, the three most important things about real estate are location, location, location!

Restaurant Design Fees

Design fees will vary based on the size and complexity of the project, but you can expect to have several consultants involved. This should include an architect as well as possibly electrical engineers for lighting and power; mechanical engineers for heating, cooling, ventilation, plumbing and a sprinkler system; interior designers; and structural engineers. Fees may range from 8-15% of the construction cost.

Pre-Construction Costs

You can't open a restaurant without the required permits. Permit costs will vary based on the size and scope of the project. A new development may have costs reach tens of thousands of dollars, while a rather straightforward tenant improvement project will likely cost about $6,000.

Construction Costs

Construction labor and material costs can be a shock to the system if you've never constructed a commercial space. Construction costs will be the single largest expense you'll face. By involving an architect early, they can work with your ideas to
determine requirements and potential upgrades to help you and the contractor determine a preliminary construction budget. Ultimately, the final budget depends on many factors: detailing, finishes, quality of materials and equipment, structural and
safety upgrades, as well as any unknowns.

This is separate from furniture, fixtures and equipment (FF&E) costs, such as kitchen equipment, tables and chairs, pots and pans, freezers, buffets, flatware, napkins, tablecloths and so on.

Construction costs are variable depending on the project, scope and location, but a rough guideline is to allow a construction budget of $150 to $250 per square foot of leasable space.

Soft Opening Costs

Before you serve your first meal, you'll need to have inventory, train your staff and host soft openings, where your team prepares for its first paying customers. While these costs can vary, they are real costs and money you have to pay out before you can bring money in.

Marketing Fees

"If you build it, they will come." While that may have worked for Kevin Costner in Field of Dreams, it likely won't work for your restaurant. Hence, you'll want to invest in marketing and communications to help to enhance your brand image. This could include public relations, advertising, graphics, menus, signage and more.

Always be sure to budget for the unexpected, too.

“No matter how long and detailed your pre-build is, during the buildout, there will be a column that cannot be moved, equipment that needs to be overnighted, a plumbing expert called in, etc,” said Sadir. “Have at least 15% of additional buildout cost set aside for emergencies.”

   7. Surround Yourself with a Great Team Early On

Constructing a new restaurant can be a complex endeavor, heightening the need to surround yourself with a strong team early on. Step one is to consult an architect. Your architect can then guide you through the permitting, design, and construction process. Then, continue the hiring process with marketing and communications professionals, staffing for the restaurant and so on. Having a team of professionals invested in your best interests is key to success.

“For those new to franchising and buildout, your first hire needs to be an experienced General Manager,” said Sadir. “One who can not only work as a project manager before opening, but, of course, be an operational expert.”

Wrapping it Up

Stepping into the restaurant industry can be both thrilling and intimidating to first-time franchise owners. When you have the right professionals in your corner, it will become a whole lot less intimidating. Then, when your restaurant opens its doors for the first time, a sense of satisfaction will sweep over you. Enjoy the moment. You've earned it.

Are you beginning your first franchise restaurant buildout? If so and you have questions about the process, contact M Ramseur & Associates, PLLC to start off on the right foot.