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How to Start Restaurant Chain Business?

How to Start Restaurant Chain Business?

In India people have hugely accepted fast food culture in last two decades and fast food franchisee have been flourishing ever since in India. Apart from Indian fast food, American and Chinese fast foods are most preferred here. Then come admiration for Italian and several other are follow. The idea of restaurant business works great in India because people here are keen to try food of various cultures. This is the reason why south Indian food have  been loved in North India and North Indian outlet earn huge profit in South India.
For this reason franchisee from all over the world wants to invest in India and the one who already have enjoying the huge profit they make.

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For starting a chain of restaurant business some basic legal compliance need to be followed by you. These are basic requirement which need to be followed at initial stage. And these compliances have already mentioned in our Article How to start a Retail Restaurant Business?
From above mentioned article you may get basic idea for register your business as legal identity, licences required in India and business plan and taxability. We are going to provide you further information on how to start large scale restaurant chain business. But you need to go through basic requirement of starting restaurant business.

Ways of starting restaurant chain business are
  1. By starting Branch of business at different locations
  2. By providing Franchisee of business.
For starting a branch of your business in India:
It is provided under The Companies Act, 2013, according to which:-
In order to open new branch offices in India, a domestic company must pass a resolution in its Board meeting specifying:
      1. The business to be carried out at that particular branch office
      2. The appointment of person to look after the everyday business of the branch and operate the bank account of that branch
      3. The provision for authorizing person to make arrangement for establishment, accommodation, and other requirements which are essential to run that branch office

Points of consideration while franchise your business:
If you're considering franchising your business, know that the process of becoming a franchisor is usually long and involves considerable cost. Just because you qualify to sell franchises doesn't mean you will find buyers. Data from the International Franchise Association shows that of the 105 companies that started selling franchises in 2008, more than 40 had not reported the sale of their first unit by the end of 2009.

  1. The Indian law does not define franchising. However, simplistically put, franchising is a method of distributing products or services. The Blacks Law Dictionary defines a franchise as a license from the owner of a trademark or trade name permitting another to sell a product or service under that name or mark.
In a normal franchise agreement, there are at least two parties involved:
(a) The franchisor, who lends his trademark or trade name (or other intellectual property rights) and the business system; and
(b) The franchisee is person who pays a royalty and often an initial fee for the right to do business under the franchisor’s name and business system.

Most suitable franchising system for food restaurant chain is:
Dealer/Distributor/Marketing arrangements: These are the most common franchising agreements where usually the dealers or distributors adopt a particular business system or format of the franchisor. Generally these agreements are entered into in cases of dealerships with automobile companies (such as with Hyundai and Maruti Udyog), food and consumer goods chains (such as McDonalds and Barista), petrol pumps and gas stations (such as Hindustan Petroleum) etc.

Other requirements
  1. Evaluate your business: No restaurant succeeds without a great chef, a great location, and a great concept. They all work together. Your location should fit your concept. Your chef, or “talent,” must fit your concept of restaurant otherwise you’ll constantly deal with the most common word in the restaurant business: Drama. So, while starting chain of restaurant business evaluate these three factors.

  1. Overestimate your capital needs. Plan to have six to nine months of working capital from the initial stage of your business. You’ll be surprised by how quickly the expenditures add up and how much time it takes for a new place to grab hold and get regular customers.

  1. Focus on customers: The most important money you will spend is money that adds value to the customers. Determine a percentage of your revenue to put into improvements that affect the guest and constantly enhance their experience. At restaurant you don’t spend money on advertising or marketing but you should give customer satisfactory services. We give away gift cards and send a lot of complimentary dishes to tables.

Service Tax
  1. Restaurant is taxable under the purview of service tax. As per Notification No. 26/2012 of Service Tax on Bundled service by way of supply of food or any other article of human consumption or any drink, in a premises ( including hotel, convention center, club, pandal, shamiana or any other place, specially arranged for organizing a function) together with renting of such premises ha abatement of 70%. Hence rate of service tax on restaurant service is 4.5%.

  1. General Exemption under Service tax:
Small Service Provider: Vide Notification No 33/2012-ST, dated 20.06.2012 – Exemption to Small service providers having taxable turnover of less than 10 Lakhs and providing service other than by way of under a brand name.

VAT is levied by the state government on sale on any good or items and the food sold in restaurant is liable to be taxed under VAT registration from state authorities. Vat is levied by the state government and so each state government has different rates of VAT.

Income tax
Income tax is to be paid by partnership firm and domestic company is @30%.
  1. 2% of the income tax amount (If income is greater than Rs.1,00,00,000)
  2. 5% of the income tax amount. Subject to marginal relief (If income is greater than Rs.10,00,00,000/-)
Education Cess: 2% extra (charged on the amount of income tax + surcharge being paid)
Secondary and Higher Education Cess: 1% extra (charged on the amount of income tax + surcharge being paid)

Hence restaurant chain business is profitable business. It requires huge capital and labour. So, it should be done carefully.


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