Project Description

5 Reasons to Expand Your Successful Donut Shop into a Franchise

Opportunity to grow from one or several donut shops to many more internationally 

Last updated on April 1, 2020 by STOK Engineering

recipes for donuts

Starting your own franchise could allow you to scale your business much more quickly, with less risk, while maintaining your original vision and concept. Launching a successful franchise operation can lead to a very rewarding career. Many highly successful businesses such as Dunkin’ Donuts, Krispy Kreme, McDonald’s, Subway, were all started and still operate as franchises. This article argues that the development of a franchise from an existing single- or multi-store concept is worth the consideration and investment of time and effort.

Note: this article assumes basic knowledge of a franchise is and how it’s usually structured. We recommend this material for pre-reading: The Balance and Investopedia.

Franchises Carry Less Financial Risk for the Franchisor

As franchisor you carry very limited to zero financial risk from each new franchisee setup. The franchisee typically pays upfront for the entire equipment required to set up: the donut equipment, including the robot, shop fixtures, counter, fridge, mixer, store signage, etc. The initial fee the franchisee pays for training and equipment plus the ongoing maintenance fee provide the franchisor with secure revenue stream, while taking on much less of the financial risks.

Please note, however, that while carrying less risk, you must also be prepared to rake in less reward. The fee structure must be such that it makes it financially viable for franchisees to partner with you. Setting the fees too high will discourage operators. Often franchisors also forego fees until the franchisee business hits certain revenue or profitability thresholds. Deep understanding of your profit margins and drivers is required to be able to set up a successful franchise and guide your franchisees to success.

More risk can be carried by the franchisor if the franchisee leases instead of buys equipment from the franchisor. It’s an option that allows the franchisee to start up operations easier and can add some opportunity for additional risk/reward to the franchisor who provides the leasing service.

Scaling Through a Franchise Requires Less Capital

Opening new locations means you either have to put up the initial investment yourself, raise capital through friends or family (and likely give up a share of the company), or secure it via a bank loan. Developing new locations can be just as costly as your very first one. Donut concepts are heavily influenced by each locale and require time for people to find out about them, try them out, and develop to their full potential revenue and profitability. Franchisees should know they local areas and market better, which should allow them to reach profitability of new locations faster.

Franchisees Can Find the Best New Locations

Finding great new locations can often be the hardest part of scaling your business and can become the biggest bottleneck to growth. Hiring a broker or any sort of real estate agent is very cost-prohibitive for a small fast-growing business. Establishing a franchise essentially allows you to outsource the search of new locations directly to your franchisee partners. Negotiating leases, obtaining required permits, etc., can all be daunting tasks that will be managed by your partners. In many cases the franchisees themselves might even be the owners of locations they plan to develop with your concept.

Knowledge of Local Rules and Regulations and Tax Implications

Franchisees know their local regulations and rules, which allows them to more easily get started and operate in their own country. Local customs and other unwritten rules also apply. Taxes and other financial implications, which can be more beneficial to a local entity, can also make it much more feasible to expand internationally through franchisees.

Maintaining and Growing Your Vision

Ultimately you decide who to partner with and set the contractual terms. Your vision, consistency and quality can be enforced with a contract, but it’s always best to pick partners to work with who share that vision from the very start. Maintaining food safety, consistency, and quality across all franchise locations is key to scaling your operation nationally and globally.

To maintain this vision and franchise consistency, it is essential to document and establish all processes related to store launch and day-to-day operations. We usually call these “Standards and Operating Procedures”. Having all day-to-day processes well documented, even the most simple and mundane ones, allows new franchisees to train their staff and hit the ground running very quickly. Consider these “The Manual” for all store operations. For instance, from how to prepare your donut mix for your donut equipment (see our blog post here) to how to clean the machine and other equipment at the close of operations each day.

Franchisees can even contribute to your vision with know-how and inventions of their own. They can come up with a new donut mix, with ways to better preserve that mix, with fun ideas for special toppings and decorations…

STOK Engineering is a manufacturer of high-quality retail and industrial donut equipment. We manufacture all equipment within our factory and adhere to highest food safety and equipment quality standards. Find out more about our product offerings by clicking the link here.
Stoyan Kiryakov, CEO

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