7 Reasons Why Franchises Fail? Nope, There’s Only One

New franchisees are prone to make one or more common mistakes, but there is only one reason why a franchise would fail.

Before Buying a Franchise, Look in the Mirror

I’ve got a shocking statement of fact to make. Despite the huge success of franchisees across the United States, some franchises fail. If you’re considering becoming a franchisee, then you need to know the common mistakes that lead franchises to fail.

Mistake Number #1: You haven’t planned for cashflow

Just like independent businesses, cashflow problems are one of the major causes of franchise failures. You can be profitable, but problems with cashflow will still sink you. 

Simply put, cash flow is the amount of money going out versus the amount of money coming in. You must pay your suppliers to keep your supplies flowing and enable your business to sell products and make a profit. But if your customers are slow at paying, your cash flow will suffer. Poor cashflow leads to problems with supplies, paying employees, and paying yourself.

How do you mitigate this risk? Ensure that you plan for and hold enough working capital.

Mistake Number #2: You aren’t suited to the business or life as a franchisee

Many beginner franchisees make the mistake of buying a business they desire rather than buying a business they will be good in. You love your fast food, so you buy a fast-food restaurant. You love cars, so you buy into an auto dealership.

While it’s important to be passionate about what you do, it’s crucial to be good at it. For example, you should:

Do you have what it takes to be a successful franchisee? Take the Franchise Aptitude Test to learn your suitability as a franchisee now.

Mistake Number #3: You don’t get the training and support you need

Starting any sort of business is a step into the unknown for most entrepreneurs. For first-time franchisees, it’s a whole new world. You’ll need training and support.

The franchisor wants you to succeed, so usually provides operational support that includes training. However, this isn’t always the case, or the support may fall short of what you need.

To avoid this mistake, you’ll need to be certain of the level of training and support that the franchisee will provide – and make sure it’s in writing.

Mistake Number #4: You don’t have an adequate business plan

If you fail to plan, you plan to fail. It’s crucial to kick start your business with a comprehensive business plan. You should take independent advice and involve the franchisor – they will want to know that you have considered everything from cash flow to employees.

Your business plan is your route map to success. Don’t neglect it.

Mistake Number #5: You have unrealistic expectations

When you buy a franchise, you will have expectations of achievable results. But are these realistic? Your revenues and profitability rely on many factors. These include:

  • Your skills

  • Location

  • Your employees

  • The training and support given

  • Costs of supply and profit margins

You may also have expectations of the hours you will need to spend in your business and the salary you can take.

The onus is on you here. You’ll need to consider all the bases, and analyze the business model and yourself. A set of experienced and impartial eyes are usually what is required to see the real picture and keep your expectations realistic.

Mistake Number #6: You don’t follow the franchisor’s business model

One of the reasons why franchises tend to be more successful than new, independent businesses is that they benefit from a known, tried-and-tested business model. 

Still, some franchisees think that they know best. They tinker with the model, change the way things are done, and go a little ‘off-grid’ with their business practices. If your brilliant ideas aren’t aligned with the brand of the franchise, you risk losing customers and experiencing plunging sales.

Always stick to the system. You’ll have a lot of autonomy as a franchisee, but you must follow the business model. Make sure you are willing and able to do this before committing to buying a franchise business.

Mistake Number #7: You don’t hire a good franchise attorney

Buying a franchise is a big investment to make, whatever the cost (read our article ‘More expensive franchises may not be worth it’ for tips on how to value a franchise opportunity). There will be a ream of paperwork to review and a web of legalities to negotiate.

Be responsible with your investment cash. Hire an attorney who has experience and expertise in helping first-time and seasoned franchisees tick all the boxes and ensure that what they are buying is what they have been promised.

Seven mistakes, but only one reason why franchises fail

These seven mistakes are the most common ones that lead to franchise failures. Take another look at them, and you’ll see the one reason why franchises fail – the common thread that runs through each mistake. You.

If you aren’t cut out for life as a franchisee, or you plan your business poorly, or you hire the wrong people into your corner, you may become one of the few whose franchise business fails.

If you avoid these mistakes, your chances of becoming a successful, entrepreneurial franchisee will rocket. To hit the ground running, get in touch with New Ground Consulting. Your success is our success – which is what has made us so successful.

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