Why Do Some Franchisees Fail

Franchising. Buying into a proven business, with embedded customer loyalty. It should be a ticket to make profits. Why, then, do some franchisees fail?

No Business Success Is Guaranteed

No business is 100% fail-proof. This goes for franchises, too. Investing in a franchise business should deliver a better chance of success than starting a business from scratch. But it doesn’t always work out this way.

Why is it that some franchisees fail? Here are the seven most common reasons.

1.      You invest because you love the product or service

We all fall in love with products or services that we use. It’s why the iPhone is so popular. Loving a product so much can make you blind to reality. This is when you decide the product is so good that you simply must invest. You love it, so why wouldn’t others?

There are two issues here:

        i.            You don’t have what it takes to run a business

This could be in your skillset, your time to commit, or your natural personality. You must be a resilient people leader, able to commit to your business venture.

       ii.            The product you love is wrong for the location

Whether it is because of demographics or a business model that doesn’t replicate well. You can’t get enough of those burgers, but this doesn’t mean they will sell well where you plan to open. The store you open might be hidden down a side street, with little footfall. It could be that what is a great business model for the skillset and personality of the franchisor doesn’t transition well to you.

The solution: Never make an emotionally charged investment into a franchise. Make sure that you understand your own strengths and weaknesses and those of the business you are about to buy.

2.      You don’t do proper business planning

Just because you invest into a franchise opportunity, doesn’t mean you must be any less diligent in your business planning. When you fail to plan, you plan to fail.

A business plan is your roadmap to success. It sets out the path you should take, details the milestones you expect to achieve, and helps you plan for unexpected events so that these don’t destroy your business.

The solution: Compose a detailed business plan that becomes a walk-through guide of how to make your business profitable. The franchisor should help you with this (it’s in their interests that you are successful), but I also recommend getting advice from experienced professionals such as lawyers and accountants. Oh, and don’t stray from your business plan after you have invested in the franchise.

(While we are discussing business planning, take a couple of minutes to read about the 10 best franchises to buy in 2021.)

3.      You lack the capital to run your business

Cashflow is the number one reason why small businesses fail. According to data collected from the Bureau of Labor Statistics, there is a 50% chance of a new business failing within five years. A study by U.S. Bank found that 82% of small businesses fail because of poor cashflow.

The solution: Understand cashflow. Even profitable businesses fail because of poor cashflow. Make sure that you have the finances in place to cover short-term calls on your business (such as paychecks and supplier invoices) while you are waiting for payments from customers.

Remember, too, that a little reinvestment early goes a long way. For example, maintaining the integrity of your business premises regularly could negate the need for a large investment into building maintenance down the line.

4.      You don’t have the time to be a franchisee

Another common mistake is taking on a franchise that you don’t have time for. This could also be something that develops further into your journey as a franchisee; for example, if you become ill or decide that you’ve had enough of the business you are running.

The solution: Be sure from the outset that you will commit your time and energy to being a franchisee. There’s no such thing as a completely passive franchise investment, and so you must understand exactly the commitment you are expected to make.

In addition, make certain that you start out by looking forward. Always have an exit strategy as a franchisee before you invest.

5.      You have unrealistic expectations

What do you expect to earn as a franchisee? What lifestyle do you expect your franchise to deliver to you? If your expectations are unrealistic, you will be disappointed and risk losing interest in the business – and this could be disastrous.

The solution: Your business plan should set out your expectations. The secret is to have them assessed comprehensively. The franchisor should help with this, but make sure you also get the views of a franchise consultant who takes the time to get to know you.

6.      Failure to follow the franchisor’s business model

Some franchisees think they don’t have to follow the franchisor’s business model. They believe they have better ways of doing things, and so put their own processes in place. Not only are you breaking the terms of your franchise agreement if you do this, but you also risk losing customers who buy from you because of the franchise’s reputation.

The solution: Stick to the business model. Don’t tinker with it. If you have an idea that you believe will enhance the business, your revenues, and your profits, share it with the franchisor. It’s my experience that good franchisors are always open to good business ideas.

7.      Complacency

The last on this list of reasons why franchisees fail is complacency. Absolute blind faith that your business will succeed because it is a franchise.

The solution: Markets change. Customers’ needs and desires change. If you don’t keep abreast of evolving markets, you risk profits becoming losses. Make sure you stay in contact with other franchisees. Hear what they have to say about their own businesses, and be quick to share insights that you may have. Digest information and adapt your strategy to align with market evolution (and speak to the franchisor first!).

Improve your chance of franchisee success

Investing in a franchise business that is already successful should boost your business success. But there are no guarantees. Get it right, and your business should be profitable and meet – perhaps even beat – your expectations.

The above list of reasons why you may fail as a franchisee isn’t comprehensive. If you are considering investing in a franchise, your start point should always be to take a franchisee aptitude test. You’ll learn if you have what it takes to become a franchisee.

Your second step is to then explore your motivations and the franchise market with a franchise consultant. This will give you a deeper insight into the potential that your investment could unlock.

Take the second step. Book your free consultation with New Ground Consulting.

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