Seven Reasons Franchises Fail

mcdonalds

This article is contributed by Tyler William.

For those looking to invest in a business, the franchise model is certainly appealing. Rather than starting a new business from scratch, a franchise comes complete with both a proven product and a popular brand.

Though there’s no denying such assets, many investors don’t realise that franchises still come with their fair share of risk. And when such risk is underestimated, it’s very easy to wind up with little other than an expensive failure.

Should you be considering opening a franchise, here are seven common pitfalls that you’d be wise to avoid.

A Lack of Business Skills

 

lack of business skills

When you open a franchise, business support comes as standard. Suppliers are taken care of and you can expect to receive help in everything from marketing to accounting. Unfortunately however, some franchisees expect too much.

Basic business skills are still very much required. Decisions will still have to be made and when those decisions are made incorrectly, a franchisee can go out of business just as fast as any other business owner.

A Lack of Commitment

 

committed cyclist

Perhaps it’s naivety on the part of the franchisee, or perhaps it’s the sales pitch of the franchiser, but many franchisees greatly underestimate the amount of work that is involved in opening a successful franchise.

It might be possible to take a more hands off approach eventually but during the first year of operation, you can expect to be working your fingers to the bone.

The Wrong Location

One of the first choices that a potential franchisee has to make is where they are going to open. This is also where many franchisees make their first mistake.

  • If you open on the wrong side of town, you are going to have a very hard time getting customers through the door. And without customers, you don’t have a business.
  • If you select a location that’s too expensive on the other hand, you might struggle to be profitable regardless of how many customers you can attract.

The Wrong Staff

Like any other business, a franchise is only as good as its staff. Many franchisees are inexperienced when it comes to both selecting and training staff. It doesn’t matter how great your product or service is, if it’s not being sold by friendly and competent staff members, you’re going to struggle to make sales.

A Lack of Demand

 

lack of demand

Just because a particular franchise is popular in one area, does not mean that it’s going to be popular in another very different location. Failing to correctly predict local demand is an easy way to spell doom for a franchise before the doors have even been opened. You must check out the demographics of those who pass by your proposed location and make sure they could be potential customers.  Perhaps they live very different lives with very different tastes and what you have to offer is of no interest to them.

Insufficient Capital

Many franchisees start out with insufficient capital. Whether or not such franchisees are successful often comes down to little other than luck. Slow starts are common and when you combine a slow start with a lack of capital, the result can be catastrophic.

It takes time to get noticed when you open a new business. And if you don’t have enough money in the bank, cash flow can become a major problem. Many otherwise successful franchises have closed solely because the owners ran out of money during the first year.

The Wrong Franchiser

 

successful entrepreneur

Finally, not all franchisers were created equal. Some are simply small business owners who have found success in one location and would like to expand. Such franchisers don’t always have the necessary skills, or motivation, to adequately support franchisees.

Combine a lack of support with expensive royalties and you have a recipe for failure, not success.

Author Bio: Tyler William is working under steinpag corporate lawyers, Steinepreis Paganin is an independent corporate, mining and resources and commercial law firm, servicing local, interstate and overseas clients.

Image Credits: Some are copyright free: others are Creative Commons Licences as follows:

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