Franchise Lawyer Blog

Restaurant Franchises – Too Great a Risk?

The New York Times hosts a small business blog, which today addresses the unique set of difficulties created by entry into the restaurant business. As the writer, a former restaurant entrepreneur, notes, “…restaurants require an enormous amount of focus and the ability to coordinate a seemingly infinite number of details, many of which must be expressed as ratios and monitored constantly in order to run a successful establishment.” And yet restaurants are uniquely popular as small business start-ups in general and franchise opportunities in particular.
Why? Because a successful restaurant is a magical place, vibrant, electric, humming. The coolness factor cannot be overestimated. To stand at the door greeting eager patrons to a sold out restaurant is the closest business environment there is to starring in a hit broadway play. The creative element of providing the decor, style and menu of the establishment enables the entrepeneur to take particular and personal ownership of the business.
And yet the first response that a new franchisee will likely get to the news that he or she is opening a restaurant is a cautionary tale about how most restaurants fail. However, there has been some documented writing on that subject that dismisses that assumption as an urban legend. According to actual research, restaurants, including franchised restaurants, fail at a rate that is no higher than the failure rate for new businesses in general. Generally speaking, restaurants appear to fail at a rate of 25% in the first year and 60% over the first three years. While these hardly appear to be encouraging franchise survival rates, those rates are consistent with the survival rates of start-up businesses in general.
From the point of view of the franchisee and those counselling him or her, it is essential to recognize the risks to starting a new business. Everyone has to go in with their eyes open and with as much protection as their attorneys can provide. However, there may not be anything more to fear to entry into the restaurant business, which may make the allure of success in that field even more enticing.

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