Despite franchising being a safer way of doing business, it doesn't mean that it's risk free! Because of this, it's important when researching franchises to carefully look at your options, and find out which franchise systems could cause you major problems over the long run - and which franchise systems will provide you with a great formula for franchise success! Below are some of the top problem areas in why a franchise might struggle.
1. Lack of Systems: Franchising is all about systems. Being able to replicate a successful franchise system is what makes a business franchiseable. An ethical franchise has everything documented and systemized so that it can easily be passed on to others for successful implementation. If a business doesn't have any systems and instead relies only on the skills of individuals within the business, then it shouldn't be franchised. However, some businesses will ignore this and try to franchise their business anyway. Unfortunately, these companies usually are only interested in a quick buck, and aren't overly concerned in who may or may not have the required skills for the successful operation of the franchise.
2. No Track Record: A business can only be franchised if it has a track record. We're often amazed at the amount of people who have an idea for a franchise, but then don't actually have a business! Remember: the business comes first - it's not conceived at the same time as the franchise! Those usually wanting to start a franchise without having a business are again looking to make money fast. Make sure that the franchisor has an established track record of running a business, along with a great reputation of success in franchising!
3. Location: Half the battle of owning a successful franchise is finding the right location for your business. And depending on the nature of your business, not all franchisees need to be in a city center location or shopping mall. However, a good franchisor will help you study local demographics and work with you to find a great location.
4. Lack of Marketing: Good franchisors will spend money on promoting the brand nationally as well as in the local area. Ask the franchisor about their marketing activities, and what they plan on doing to help gain recognition and awareness for your franchise. In today's environment there are many ways a franchisor can help market your business in your local area, if they don't plan to help you with that it is another red flag. A franchise system should have data on local marketing efforts of other franchises in the system, access to that information saves you lots of time and money!
5. Competition: Check out the competition for your franchise in the local market. If there isn't any competition, there might not be a demand for the product - which may result in it not having much future market potential. On the other hand - you may have discovered the perfect franchise for your area! There may be a real need for this business, and being first to market can be a great advantage for you. Additionally, if there's too much competition, introducing a new franchise might be a struggle as well. Be sure to look into markets similar to your own where the franchise is operating in order to judge how well it might do in your local area. A good franchisor should have access to information that can help you decide whether the competition factor in your area is a plus or a minus.
6. Insufficient Funds: One of the biggest reasons franchises can fail is that the franchisee has under-estimated how much money is needed to buy and run the franchise. It's not just about having money for the investment, but about the costs you'll incur when running the business. For example, how will you plan on paying staff salaries or having enough for supplies? If your franchise business is not making money initially, you'll need to make sure you have anough money for day-to-day operating costs, as well as paying your own bills. Over-estimating what you need is a good way to calculate the cost of running a franchise.
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