How to Overcome the Most Common Franchising Hurdles

Modified on 25/01/2021 10:59:33 - Published on 14/01/2018 08:00:00

The franchise model provides a way to expand your business efficiently, with individual investors spending their money to develop additional branches under your branding. But, as in any system, those involved may come up against obstacles from time to time. Here, we’re exploring the most common franchising hurdles and how you can overcome them. 

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When you experience complications in business, it can feel like the end of the world - but most franchising obstacles can be conquered with a little foresight and ingenuity. Across the UK, there are more than 44,000 franchised businesses flourishing, which shows just how effective the model can be. 

Let’s dive straight into the most common franchising hurdles. 

1. Lack of capital

Creating a franchise system is expensive. In fact, a lack of funds is the biggest problem for new franchisors. 

From developing legal contracts and franchisee training programmes to marketing materials and ongoing networking opportunities, there’s a lot to organise at the start of the process. And although newcomers pay a start-up fee, it rarely covers the full cost of their training and support. 

According to Kim Ellis, a senior consultant with MSA Worldwide, a typical franchise needs at least 20 profitable units to become royalty-sufficient. Reaching this point could take a couple of years, and it’s possible your funds will dry up before you get there. 

The solution: Develop a realistic break-even analysis before starting your new enterprise. It’s easier said than done, but an experienced franchise consultant could be of help. You’d also be wise to research the best franchises currently in operation and find out their starting cost; this will help you develop your own plan. Then, you can approach banks and other official lenders - ideally ones with a specialist franchise department.

 

2. Weak infrastructure

A business isn’t necessarily destined for franchise greatness just because it’s managed to turn a profit as a single unit. Brands often have to completely transform in order to see success across an entire region, country or continent. 

If you try to expand with a weak infrastructure, you’ll probably fail to attract quality franchisees and end up getting edged out of the market by larger competitors. In the long term, your business is likely to fail. 

The solution: Research is key here, but another great way to build a robust infrastructure is to invest in an expert team. You should focus on developing departments to oversee aspects such as operations, finance, training and marketing. A strong infrastructure allows franchises to operate like a well-oiled machine, so it’s important you have people around you who can support your transition into franchising. 

3. Unprofitable territories

It’s fairly common for a brand to be incredibly popular in one location and fail to find a large customer base in another. Product demand, consumer buying habits and trends vary from place to place, so there are no guarantees your business will turn a profit in the regions you’ve earmarked for expansion. 

Approve an investment contract for an unsuitable territory, and you could end up with significant debts, a frustrated franchisee and a tarnished reputation. 

The solution: Unfortunately, you can never know for sure whether your business will succeed in a specific territory, but you can put yourself in the best possible position by conducting market research. Look at how similar businesses have performed in your target area and whether there’s a gap in the market for your offering. The more data you can find, the more likely you are to make the right decision. 

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4. Unsuitable franchisees

Sometimes, franchisors are eager to grow their business quickly and award franchise agreements to unsuitable candidates. Whether they take investments from friends and family, or just inexperienced or non-committal applicants, rushing into partnerships is a dangerous move.

Usually, franchisors in this situation end up parting ways with the franchisee further down the line and spending unnecessary capital on training and onboarding a new investor. In the best case scenario, the unsuitable franchisee leaves before doing any real damage to the franchise as a whole. 

The solution: However much you want to get your business off the ground - and however long it takes you to find the right investors - it’s worth taking your time. Your franchise deserves the best, so you should be selective in only partnering with the highest quality candidates. Taking this approach will allow you to gather a team of driven and loyal investors, who work with the brand’s best interests at heart. 

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5. Poor timing

Developing a franchise takes time - time to raise money, build the infrastructure, carry out market research and recruit the franchisees, to name just some of the tasks involved. The problem is, once you’ve ironed out all the kinks in your plan, the market will likely have changed and you’ll need to adapt your strategy. 

Many franchisors spend too much time designing the perfect franchise business model and never take the final step to put it into action. Others jump in too soon and are caught out by unexpected pitfalls. 

The solution: It’s crucial you find the balance between acting too quickly and holding out for too long. Aim to catch a gap in the market without overlooking any critical aspects of operating a profitable franchise. If you wait for the perfect time, you could be waiting forever, so, ultimately, it comes down to you to judge the situation. 

More resources

Point Franchise is dedicated to giving ambitious entrepreneurs the data and insight they need to establish and develop successful businesses. Every day, we publish informative articles on a wide variety of franchising topics. 

For more tips for overcoming franchise challenges, see our daily business guides or use the search box to find specific publications. 

You can also catch up on the latest news in the franchising world to see how businesses are using the franchise model to expand every day.

Alice Tuffery, Point Franchise ©