Franchising/licensing someone to use your name & sell your product??

We’ve had a few people ask if we’d ever consider franchising our restaurant, but I never took them too seriously.
But now I’ve got a group that wants to boldly move forward with it, they want to do the build out over the winter, and be ready to rock come summer.
Their location will be about 2 hours away from our location

Has anyone here ever done this? Can you provide any tips on how to even go about this. I know an attorney will need to be involved, but besides that, how does one protect their formulas, and processes yet still let another entity use them?

I use Point of Success, and I see their Central point remote program coming in handy for this venture, So I can watch gross sales that way.

Please share both your horror and success stories, and what you have learned.

I’m thinking I may want to study Harlan Sanders story a little better (KFC)

I have someone trying to get me to do this as well. The only things I think I can protect are my recipes for my sauces by way of prepackaging the spices and my name and branding by way of trade mark. Anything else is out there for anyone to find either through dumpster diving to see what products I uses or studying the same things I did before opening.

I suppose you could have a non disclosure/non compete agreement but I have seen people work around those without much trouble.

While I had a delivery service one place I contracted to was a small regional franchise. They sold more pizzas off the books than they did through the POS. This was done to avoid the franchise royalties and taxes. It took about 5 years but they caught and lost the store over it. The franchisor lost over $200k in royalties when the smoke cleared.

Never done any of it. Yet.

But we are asked about one time a week if we will franchise. My wife gets to deal with this as she is out front. She has started telling them when they are serious, and and are going to put their store more than 2.5 hours away from us. Come with the money and talk. And then she says you can just buy this one for the right price after she tells them the franchise stuff.

I had one pizza place that helped me when I started. His response when he found out I was serious was that he had me come to his place and go thru things in the kitchen and prep. I bought his spice packet from him for the sauce. Showed me a few other things to do right and wrong. But I am 1.5 hours away and he figured I would not be any challenge to him. So he figured why not help me. It turned out fine. He then sold the place and told me what his sausage recipe was. And I figured out the sauce after he sold the place last year.

Thats almost exactly what I have been saying to the “tire kickers”, and after a summer of us being watched closely by this group, they came back, and are serious about moving forward with operating a franchise. I am going to inspect their building on Tuesday, and have a required equipment list together for them, if they don’t balk at seeing those costs, I’ll know that I can take them seriously.
BBQ pits that are NSF & UL listed do not come at a budget price, even on the used market

I also thought we might have had a serious purchaser in September . The interested party had sent their son through culinary school, and he is getting dismayed about needing to work his way up the ladder since graduation, so they entertained buying my biz for him to call his own. I highly doubt they understand the demands of ownership, but if the price is right, I would happily walk away after my training commitments.
I do not advertise, or let it be known that I wouldn’t mind selling, but everyone has their price, and mine is not out of line for what we built from nothing (my opening budget was less than $6K)

I am with you.
Open since May of 2012. Built from nothing with no money borrowed. Cept the contract for the building which is DIRT cheap in my little town of 800. Owe NOTHING on it.
I too would sell to the right buyer and for the right dollar amount.
If I did sell. Part of me says to not give my sauce recipe away. Or make them buy the spice packet from me. Another part of the sell says to keep a certain % so you have some say.
On the franchise thing. I have no clue what to say. That is why I did not do a franchise. Did not want to pay fees.
Good luck.

Zipp,
I plan to have our sauces & dry rubs made off-site by a 3rd party, those will need to be purchased through our existing location, the pizza dough, I may need to custom blend my flours here, and put together spice packets for the sausage and sauce.
I tried to have a 3rd party make our sausage, and I was very specific that either Boston Butts or picnic trim was to be used for meat. They ran untrimmed cushion through the grinder, so it had big chunks of gristle in it. and it was too lean, Nothing turns me off more than biting into sausage that bites back, I gag, and lose my appetite because if they run gristle through the grinder, I know they didn;t bother to remove lymph nodes either.
So, I may need to make the sausage here, and I also plan to test how my dough works after freezing the balls and thawing before use (if they plan to do pizza too, not sure on that, they may just want BBQ at their place)

Meeting is on Tuesday, and they are bringing another group of interested people into this too, so we may possible see 2 other locations out of this. I sure hope so!

Doesn’t re-selling meat products create a whole new set of issues…Like a federal licence of some sort???

Actually the re selling of the meat here in Iowa consists of having a proper state approved label for resale.
If you just have a meat supplier make your sausage and you only use it. It has to have a state approved label applied to it that is somewhat different than the one used for resale.
I don’t know for sure. I just went thru the process of having a spice company make my spice packets for my 3 homemade sausages.
Then I had to have my local meat supplier have all the garb submitted to the state to have the labels approved. Like what is in it. Special size printing on the labels. And whatever else they needed. My meat supplier took care of all that. They will be mixing my spice packets with the pork, which I had previously purchased from them, and mixing it when they grind. Then vacuum sealing each one in 10lbs.
I cannot resale this. If we went thru the proper channels with the label I could offer it for resale. But have no plans to.
So if you are going to resale the sausage. Check with the your proper state agency.
Spice packets may be the easiest. I had my spice packets made into packets big enough to mix 60lbs of pork which is what my meat supplier runs thru his grinder at a time.
I had previously mixed them at 10 lbs each by hand. Hence why I went to the new method. Got a little tired of doing 60to 100 lbs a week.
yuk on the nodes too…

If I was wholesaling a meat product, yes. I would need an EST number HACCP plan on file, and an onsite inspector during processing, and we could not be open to the public while doing it.

It’s not “technically” resale
I believe since this is for a licensed franchise, its’ “technically” the same business, this slides into a grey area because it is a product prepped at one licensed location for use at another licensed location instead of wholesaled to a reseller.
I’m wondering if this may be one of those rare issues where it is better to beg for forgiveness instead of trying to ask for permission…
If I am legally limited to just blending spices and they grind the pork and mix, so be it. There is a very limited amount of people who know what seasoning is in our sausage, it is a very unique blend of a far northern Italian style, and a far southern style. I’ve only tasted something like it at a single pizza place, and have been trying to duplicate their recipe for over 20 years now, and I am almost exact to theirs.

Talking Sausage, Look at the recipe for Cudighi sausage, lets see who has the balls to try that in their place! I love the stuff, but I needed something to better fit my areas median taste preferences

I do not think it would be wise to take such a “risk” as this…Every step of your operation will need to be 100% legal…Checked and double checked…

Just had my first in-person meeting with the prospective franchisees. They are already up and running as a restaurant, but want to offer our key products by adding it to their existing menu, so this is a little different than what I was prepared for.
They are currently only interested in the BBQ end of our biz, so that’ll make things a bit easier to figure out

I think I am going to study what “Broaster”, “Chester Fried” & “Malted Waffle” companies use for their licensing & product purchasing plan. Those companies all supply their equipment on a lease basis, and require a certain amount of their key canned/dry products to be purchased from them, and a royalty fee for using their trademarked name & equipment.
It looks like I will need to purchase the needed equipment outright, then lease it to the franchisees, I may be able to make these equipment purchases with the initial licensing fees.
This will also bring down their upfront fees considerably, but put me in a difficult financial situation.

I already have a licensed co-packer lined up who is able to make our rubs & sauces at their location, other than that it will be mostly training their crew at my place first, then their location.
Does this sound like a feasible plan to you guys/gals?

Daddio’s mention of “off the book sales” looks like it has a very high probability of happening with this situation, I’m thinking that part of the license agreement requires using the same POS software as I use and a central point accounting module being in place.

Change of plans;
Instead of trying to get a royalty fee,

After crunching the numbers, it looks like the lease payments for the needed equipment to prepare our items, and them purchasing the needed supplies through us will be how I am going to do this and be profitable with this venture.
Then I do not need to be concerned with off-book sales, and I can judge volume by the condiments and seasonings purchased
They want to be up and running by the holidays, I may be able to pull this off if I close my location for a very intense training period of 2-3 weeks at their location. If they violate our contract terms, I can cut them off on supplies, and repo the equipment. If this does happen, I have a need for more cooking volume at my location anyways and I have a 2nd piece of equipment to use.