Avoiding franchise failure

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Avoiding franchise failure

Franchising is a great way to expand an already successful venture. With franchisees putting up the necessary capital and taking full operational control of their units using your business model, its a relatively low-risk growth strategy. Youll also give your investors a great business opportunity. Together, you and your franchisees will work towards a common goal. As the success of your franchisees is crucial to your success, its in your best interest to do everything in your power to help them avoid any pitfalls that will result in their failure.

Here are five ways you can help keep your franchisees on track.

1. Develop a robust recruitment process

Today, prospective franchisees can access franchise information from a wide variety of sources. Your website will enable them to find out lots about your business before they even complete the initial expression of interest form.

This has its advantages because, by the time you get to meet them, they will probably have already identified whether they have what it takes to be a franchisee. If theyve done their research, theyll have weighed up the pros and cons of the franchise model so they can make an informed decision about whether franchising is right for them.

However, its still important to develop an efficient recruitment process. Once youve done this, youll feel confident that the franchisee candidate has the required skills, mindset and financial resources to be successful. You can initially achieve this by creating a comprehensive application form. The answers provided will allow you to narrow the pool of candidates by disregarding those that dont meet your criteria.

Arrange several meetings with those that get past the first hurdle, including one where they get to meet with existing franchisees. Its essential that you allow prospective franchisees the chance to ask your existing franchisees questions during the hiring process. This should reassure candidates that you have nothing to hide. If your existing franchisees have positive comments to make, they will help persuade entrepreneurs to join your business. Another advantage of this step is that it may help the candidate realise that your business opportunity isnt for them. Although this may be disappointing, its better to find out before any more time and effort is invested in their recruitment.

Finally, its imperative that franchisees have the necessary funding, not only for the franchise fee, but for the ongoing financial commitments. Fees, leases, loans and an element of working capital may all be required. Franchising your business will only be a success if your franchisees have enough money to invest in it and can continue to pay for the use of your brand and business model.

2. Encourage business plan updates

Being prepared is the best way for franchisees to achieve longevity. During the recruitment process, youll have taken a look at your potential franchisees business plans. Once the successful ones are on board, it can be easy for them to focus more on running their business than developing it.

But to make sure the franchise doesnt stagnate, you should always encourage your franchisees to spend time reflecting on their business plan and updating it when necessary. Taking a strategic view of their franchise business every now and then will prompt them to consider the future in a proactive manner. This is an infinitely better approach than being forced to react to economic or environmental factors further down the line.

3. Visit often

As a franchisor, it can sometimes become difficult to visit all your franchise units as much as youd like. Its particularly tough if you have many franchise outlets spread across the country or even multiple countries.

It is important, however, that you or your business development team visit your franchise sites regularly. By seeing your franchisees in action, youll be able to work out whether you need to offer training. A franchisee may not necessarily recognise that they are lacking a set of skills or may feel too embarrassed to approach you about receiving extra coaching.

Visiting units also allows you to maintain standards for your brand, products and service. If any of these elements arent right when you visit, take it as a warning sign that all is not well in the franchisees business.

4. Maintain financial transparency

Making it clear to your franchisees on day one that you expect financial transparency across the franchise will set expectations before bad habits are created. Having access to your franchisees financial information can also alert you to any issues that may need your support. In time, this should help to avoid franchise failure.

Its important your franchisees understand that this isnt a case of Big Brother, but a tool to allow you to track performance across the network and share the results to improve best practice.

5. Create a franchisee support network

The popular saying in the franchise community goes: youre in business for yourself, not by yourself. This is the element of franchising that less experienced entrepreneurs find most appealing. Not only do they have the support and experience of the franchisor, but they also become part of a network of like-minded franchisees.

A great way to ensure your franchisees are always learning and improving their skillset is to organise opportunities for your franchisees to meet up regularly. The format of these events is less important than what they stand for. Informal or formal, workshop or conference, local or national; it doesnt matter. The point is that your franchisees get to share best practice and discuss improvement ideas. The investment of your time organising such events will be repaid with happy, supported and successful franchisees.

6. Work out whats going wrong

Although this step may not help a failed business itself, it should serve to minimise the chance of franchise failure across your network in general. Take the time to go over a failing franchise units documentation, including its reports, letters, emails and telephone logs. Work out when the cracks started to show and how your system dealt with them. Then, think about how this could have been improved. Should you have provided more training, for example?

Once youve identified your franchises shortcomings, try to find solutions and implement them into the current system. If the franchisee would have fared better had they been better trained in handling accounts, for example, offer training in bookkeeping to all franchisees that need it and incorporate the same training into new franchisees induction schemes.

Anti-Failure Checklist

The above points are great ways to reduce the likelihood of franchise failure. Try to incorporate the advice into your business and you should start to see improvements. However, ultimately, there are three key factors you should ensure you have considered.

Ask yourself these questions:

Do you have a scheme in place? Its vital to take pre-emptive measures so that you can either avoid common pitfalls altogether, or quickly resolve any issues that do occur. Although it will take time and resources to create this scheme, it should give you and your franchisees the peace of mind that youve minimised the risk of any significant reduction in revenue. It may also work to your favour, as prospective franchisees will be encouraged to join the business if they know that theres a safety net already in place. Make sure that your franchisees are aware of the scheme, just in case they need to reach out for help.

Do you encourage a culture of openness and honesty? This is important so that franchisees feel comfortable approaching you for help without feeling embarrassed. Of course, to promote an open culture, you must ensure youre a trustworthy franchisor who acts in the best interest of the business and its franchisees. This means being transparent from day one; for example, introducing prospective franchisees to your existing franchisee network rather than putting forward one cheerleader franchisee that sings its praises. Also, always make sure youre there for your franchisees. Your door should always be open when it comes to franchisee concerns.

Do you have the resources and funding in place to implement the necessary training, mentoring or coaching that your franchisees may need? This means regular, ongoing training as well as initial induction programmes. If you feel youre not qualified to provide the training, consider enlisting the help of a dedicated business coaching firm, which will send a tutor to carry out planned sessions. You could even use another franchise Sandler Training, for example, delivers classes that help business owners improve their sales and transform their approach to management and leadership. The expense of running the sessions should pay off in the long run, as your franchisees will be better equipped to grow their businesses and generate higher profit margins.

If the answer to any of these questions is no, its time you put the infrastructure in place to give your franchisees the best chance of achieving success. It should benefit both you and your franchisees, as well as attract high-value entrepreneurs to your business.

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