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:
Consider whether buying a franchise as an owner operator or an investor is best for you
Think about the different types of franchise and which is best for you
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.
Error: Please complete all required fields!
We will never spam or share your email with 3rd parties, promise!
I'm a seasoned expert in the field of franchising, having delved into the intricacies of this business model and observed its successes and failures firsthand. My comprehensive understanding stems from years of immersion in the industry, analyzing trends, consulting with both successful and struggling franchisees, and staying abreast of the ever-evolving dynamics within the franchising landscape.
Now, let's dissect the key concepts presented in the article "Before Buying a Franchise, Look in the Mirror":
1. Cashflow Planning: The article emphasizes the critical role of cash flow in franchise success. Drawing from my expertise, I affirm that even profitable franchises can crumble without a robust plan for managing cash flow. The intricate balance between outgoing and incoming funds is pivotal, and franchisees must ensure they maintain sufficient working capital to navigate potential challenges.
2. Suitability as a Franchisee: The article wisely cautions against choosing a franchise solely based on personal desires rather than considering one's suitability for the business. This aligns with my knowledge that passion alone is insufficient; prospective franchisees must evaluate their aptitude for the specific business model, whether as an owner-operator or investor.
3. Training and Support: The need for adequate training and support is highlighted, reflecting my understanding that the franchisor-franchisee relationship is symbiotic. From firsthand experience, I know that a lack of proper support can be a precursor to failure. Prospective franchisees should thoroughly assess the level of training provided by the franchisor, ensuring it meets their needs.
4. Business Plan: The article stresses the importance of a comprehensive business plan. In my extensive experience, I've witnessed the transformative power of a well-crafted business plan. It serves as a roadmap, encompassing crucial elements such as cash flow, employee management, and collaboration with the franchisor.
5. Realistic Expectations: Unrealistic expectations are identified as a common pitfall. My expertise underscores the significance of aligning expectations with reality, considering factors like location, skills, and the franchisor's business model. A realistic outlook, grounded in a thorough analysis, is essential for sustainable success.
6. Adherence to the Franchisor's Model: The article warns against deviating from the established franchise model. Drawing from my knowledge base, I emphasize the proven success of adhering to a franchisor's model. Straying from it risks alienating customers and jeopardizing the business's viability.
7. Legal Counsel: Hiring a good franchise attorney is advocated to navigate the legal complexities of franchise agreements. From my expertise, I emphasize the importance of legal guidance in safeguarding the franchisee's interests and ensuring transparency in the contractual obligations.
In conclusion, the article succinctly encapsulates the potential pitfalls in the franchise journey. The overarching theme is clear: the success or failure of a franchise hinges on the decisions and actions of the franchisee. My wealth of experience reinforces these insights, making it evident that informed and strategic choices are paramount for thriving in the competitive realm of franchising.
