One of the reasons given by business owners for deciding to open a restaurant is a lack of ready capital. When it comes to expansion, the main obstacle is always a shortage of investment funds and restaurant franchising provides an obvious advantage in this respect. As the franchisee provides the initial investment, growth occurs at a greatly reduced cost. For franchisors, investment in growth tends to be restricted to the development of franchising documentation and recruitment costs. Thus a considerable reduction in start-up costs is afforded in comparison with the typical sums involved in opening a non-franchised restaurant. Moreover, it is the franchisees who sign the leases and commit to the various service contracts. Therefore, restaurant franchising enables growth at a greatly reduced risk, with practically no contingent liability.

Many restaurant owners claim that it is difficult to find and retain good managers for their business. It has been reported that turnover rates sometimes exceed 100 per cent a year. These businesses can spend months recruiting and training a manager, only to see that manager leave or, even worse, headhunted by another restaurant. Restaurant franchising avoids this pitfall by replacing that manager with a highly motivated franchisee. As the franchisee has invested his or her own money in the business, it is likely that restaurant performance will improve. Also, the franchisor’s income is based on the franchisee’s gross sales and not profitability, which facilitates monitoring unit level performance and also requires fewer staff.