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Top Reasons Why Franchises Fail

Feb 1, 2018

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Posted In : Franchising

Starting a franchise can be a daunting task for those who have never done it before. It is a bold move that either skyrockets your business or drags it down in the dust. A franchise failing is not always the franchisees or franchisors fault. Most of the time it is a combination of both of their faults. Knowing why most franchises fail can help prevent you from making the same mistakes.

Picking the Franchisee

It is often tempting to accept the first franchise applicant when they are handing you a $100,000 check. This right here is one of the most common reasons why a franchise fails. The franchisor needs to have requirements set for what kind of franchisee they are looking for and stick to those requirements. You will be working with the franchisee a lot and so picking someone that you get along with and trust is a key factor in being successful. Bad relationships and bad support from the franchisor can doom the franchise to fail from the beginning. The franchisee is paying for your business idea and your expertise in making it work. Don’t short sell the franchisee by not doing your part in making the franchise successful.

Too High of Costs

When conducting business, it is always smart to try and do things in the most economical way possible without hurting the company. When starting a franchise, many franchisors underestimate how much it is going to cost for the franchisee and themselves. This causes those extra costs to be put on the franchisor, which can be a heavy strain on them. Estimating that costs are going to be higher than expected is always better than expecting them to be lower than expected in franchising. Don’t get overconfident and think that you can start a franchise for less than the last guy, always plan for some variance in costs to make sure you have a safety net to fall back on.

Bad Business Model

Running a franchise may seem like a piece of cake when you already have your business running successfully, but it is quite the contrary. If you do not have a solid business plan or business model when you are just running your one store, you might not notice a huge effect on the business. If you use that same subpar business plan when starting a franchise, it will blow up in your face. The business model needs to be written up in a clear and professional way for the franchisee to follow easily. Having a strong business plan is the only way to keep your franchises uniform in operation.

The Franchisee isn’t Prepared

There are some false beliefs that go around that bring people to believe that starting a franchise is easy if you are the franchisee. This is so far from the truth and the culprit for numerous franchise failures. Having a brand name established and the basic outline of the company already there makes starting a franchise much more appealing than starting a brand new business. Even though becoming a franchisee is way less work than starting your business, it still requires a lot of commitment and time. Right off the bat, you have to train an entire new staff a the same time that you are learning it yourself. Your management and people skills will be put to the test immediately, and you will fail if you are not willing to put in the time it takes to succeed.

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