The Big Red Flag of Franchising!

Posted by Jim Otto

Bigredflag.jpgPeople are requesting information about our franchise on a daily basis. The two most often asked questions I get are, “how much does it cost?” and “how much can I make?” These are questions that most interested franchise buyers have the right to know. If I may, I'd like to offer prospective buyers a question that would answer the other two and save everyone a lot of due diligence and research. You see, I think the most important question that franchise buyers should ask is, “How many of your locations have closed?”

Closing locations are the BIG RED FLAG of franchising. Why? Closing locations are a sign of several franchising problems.

Number one (and the one most people don’t ask enough) is that closings are caused because the franchise may not make enough money. This may not even be the fault of the franchisor, it’s just that it may not be a franchisable business model with enough demand from its customers. Remember: most franchising systems need several key components to be successful. The system must be easily taught to someone else, and that person in turn can teach it to someone else. Most successful franchising models create a recurring revenue model that continuous to expand and produce more and more revenue over time. That’s called scalability.

Number two is that closed locations can be a sign of poor support and training. Franchisors that don’t properly train and then support their franchisees usually suffer from lots of closed franchise locations. Running a business is hard and franchise systems that don’t help get their franchises “over the hump” and through the most difficult part of business, the startup, usually have closed locations.

So how do you know how many of a franchisor’s locations have closed?

The FTC requires that a franchise list all of their closings in the back of their Franchise Disclosure Document (also known as the FDD). If there are no closings listed, then make sure that you ask the franchisor to make sure. Under the FTC’s guide for buying a franchise, which you can find online, they'll say that if the numbers show that more than a few franchised outlets have closed, transferred to new owners, or transferred to the franchisor - then it could be due to problems with the franchsor’s support or because franchises aren’t profitable. 

This is not to say that there is a franchising system that exists with no closings. All franchising systems have locations that close. Running a business is hard and it takes lots of time, effort and perseverance to succeed, no matter how good the systems are. Plus, many people just lack the skill it takes to run a business. But if it were me, I'd always be sure to ask the question, “how many of your locations have closed?” Asking that one question will save you a lot of time and money!

Shear Madness Franchising franchises Shear Madness Haircuts for Kids salons. We have worked with franchise stores in providing franchisee support (in order to encourage continual growth), and have sometimes seen the unexpected happen!  When it does, we help by identifying and helping with challenges that might arise for franchisees. Additionally, we work to present options that can help prevent these events as well. As many franchise owners may not have opened a business before, having someone who can advise them is a significant advantages of franchise ownership!

Are you interested in learning how YOU can join the Shear Madness Haircuts for Kids family and run your own  small business? We are one of the fastest growing kids hair salons and franchise systems in the industry today! If you would like to learn more about small business marketing, great marketing strategies, resources for small businesses, business tips, how to grow your small business, or how to become a owner of your own kids hair salon franchise business, please click below or call 1-888-98 GONE MAD!

Exploring a Children's Salon Franchise