Understand why franchises fail to avoid failure
Just like all new businesses, some new franchises do fail. How can this be, when a franchisee benefits from buying a business that offers so many advantages? When you start a business from scratch, you don’t have advantages such as:
- A proven business model to follow
- Support from a successful business
- The cost advantage of a bigger business
- Being an established brand that is recognized by customers
- Help with marketing
So, why do some franchises fail while other franchisees have success beyond their expectations?
In almost all franchise failures, the root cause is mistakes that could have been avoided. We’ll work with you to help ensure you don’t fall into the pitfalls that can trip up first-time franchisees. Here are a few of these common mistakes that we’ll help you avoid.
Buying a franchise that doesn’t suit you
Just because you love a particular business does not mean that it’s a franchise you should buy. When you are considering investing in a franchise, it’s crucial to make sure that it suits you today and for your desired lifestyle in the future.
Running a business is vastly different to being a customer of that business. And there are several different types of franchise, too. You’ll need to have the right personality to manage a business, its employees, and its cashflow. The business must be the right fit for you, and vice versa.
Not having sufficient working capital
Even though you are buying a franchise, you’ll still need to maintain adequate working capital. The first few months of any business are the riskiest. You’ll have startup costs to pay and running costs to sustain. As your sales build up, your early-stage revenues may not be enough to satisfy your bills.
Even profitable businesses fail if their cashflow is not strong enough to pay their own bills. A franchisee who understands cashflow and profit, and how each impacts the business differently, is more likely to be successful.
Failing to evaluate the franchise properly
Though you are investing in a business opportunity, you are buying an asset. Just like buying any asset, if you buy at the wrong price you are more likely to lose money. You wouldn’t buy a piece of real estate without having it surveyed and valued. Don’t buy a franchise without doing the same.
Remember, though, that valuing a business is not like valuing real estate. You’ll need expert help to ensure that the finances of the business are properly examined. You’ll need to have confidence in the business model, in the underlying finances of the franchisor business, and that you are receiving value for your money.
Failing to follow the franchisor’s processes
When you have identified the franchise that is your perfect fit, it’s a great feeling when you become your own boss. Some franchisees let this go to their head. They think they know better than the franchisor, and don’t follow the tried and trusted business practices that have made the business successful.
You may have some great ideas, but they must dovetail with the franchisor’s way of doing things. You’ll need to run your ideas past the franchisor and have them agreed. If you do things your own way, you risk censure and termination of franchise.
A lack of planning/unrealistic expectations
If you fail to plan, you plan to fail. Your business plan is the map that will guide you to your destination. Yet many first-time franchisees do fail to plan their business journey adequately. If a franchisor does not ask for a business plan from you, it is probably a deal to reject.
If you have never written a business plan before, you must get advice to do so.
Your business plan will also help to set your expectations. In fact, it is integral to providing a deep insight into the potential of the franchise opportunity on the table. A well-researched and carefully prepared business plan will deliver realistic expectations for your business – and should include items such as training and support provided by the franchisor.
Avoiding the common mistakes made by inexperienced franchisees will be a massive leap toward your success as a franchisee. Helping you avoid these pitfalls is just part of our services as consultants to franchisees.
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