Why do fast food companies usually franchise their restaurants instead of operating the locations themselves?

Question

Why do fast food companies usually franchise their restaurants instead of operating the locations themselves?

In: 101

Answer 1

Everything costs money and expanding any business takes money. For smaller businesses you can get a loan to expand operations. But when you’re looking at a really big restaurant chain you’ll more likely need to find investors to make it happen… and investors want equity. And perhaps you don’t want to give up any equity because… you could just lose your business (like the McDonald’s brothers did to Ray Kroc).

Franchising your business allows you to find investors to help you expand your business without having to give up equity and without having to take on so much risk.

Now all of the risk is saddled on the side of the franchisee who has limited recourse if his business isn’t doing very well.