Franchisors: Are You Guilty of Making The Most Common Mistakes?

23/04/2018 08:00 | Start a business

Franchisors - common mistakes

For those who have just begun life as a franchisor, day-to-day running of the business can involve a tricky learning curve. As the franchisor, youll typically have responsibility for most of the big decisions being made in the company. Consequently, there's often a lot riding on your shoulders. To prevent you from making some of the most common franchisor mistakes, we've compiled this handy list.

1. Ignoring your franchisees

One of the most common mistakes made by franchisors is ignoring franchisees. As the mastermind behind the entire franchise, its all too easy to think of yourself as having all the answers. Sometimes you will. However, your franchisees are the people working on the frontline, interacting directly with customers, and experiencing problems and difficulties that you may not encounter back at HQ. Consequently, it's entirely vital that you provide your franchisees with a forum in which they can air their grievances and make suggestions. Though they wont always be right, they often offer unique insights into how the franchise can be improved.

2. Taking bad legal advice

Franchising a business can be incredibly involved, and the systems and legal processes will often grow more and more convoluted with each stage of the growth process. By the time you're looking at international expansion, you'll be having to deal with incredibly different legal systems. Consequently, it's essential that you're taking legal advice from a trusted, reputable, experienced source. Though the high legal fees may seem extortionate at first, proper legal counsel provides the firm foundations on which youll build the business.

3. Not implementing a marketing fee

Marketing costs can become one of the most significant expenditures for franchises looking to grow and expand. If you don't apply a marketing fee or incorporate it into your general franchise fee you'll soon find the costs challenging to shoulder alone. When starting out, many franchisors don't take the rising costs of marketing into consideration. This leaves them out of pocket and struggling for options. Implementing an additional marketing fee at a later date can be an unpopular decision amongst franchisees, who likely feel as though theyre being hit with hidden costs.

4. Operating without sufficient capital reserves

Franchisors need to ensure that they're working with adequate capital reserves to ride out a short patch of poor performance, meet growth targets, and account for any unforeseen circumstances. This is particularly important in the early stages of a franchise when business can be a lot more volatile and demands for support from franchisees will be a lot more common.

5. Not distinguishing franchisees from external outlets

A franchisor is well within their rights to sell products and services to businesses or individuals outside of the franchise agreement. In fact, its often a useful additional revenue stream. However, franchisors need to ensure that theyre not selling these goods and services at the same price at which franchisees purchase them. Franchisees often pay a great deal to access them and will often feel cheated if they find out that the franchise agreement doesnt grant them preferential access and rates.

6. Working with the wrong franchisees

They say a franchise is only as strong as its franchisees. This means that it's essential for franchisors to carefully consider who they're selecting as franchisees and who they're going into business with. A franchisee who doesnt have what it takes can cause irreparable damage to a franchise's brand and result in substantial financial losses.

7. Not utilising collective purchasing power

Though a franchise is a collection of independent units, they should be combining their purchasing powers to find the right price for all the goods and services they require. The collective purchasing power of an entire franchise can have a considerable effect on expenditure, allowing each franchise unit and the franchisor to make enormous savings in the process.

8. Inadequately testing the business model

Just because a business is profitable and looking to expand, doesnt make it a good fit with the franchising model. Franchisors need to ensure that their business is sustainable within the franchise system and that it will sufficiently reward them and their franchisees. A simple initial test involves asking whether you and your franchisees will be able to achieve a full return on investment, after everyone has taken a market-dependant salary, within four years of beginning the franchise process. If this isnt possible, its highly likely that the business will not succeed as a franchise.

9. Not keeping up with market developments

Though you may have a solid business plan and understand how your franchise is going to grow over the next few years, it wont mean anything unless you keep up with the latest developments. By this, we mean that franchisors need to understand whats happening with relevant technologies, legislation, trends, and also your competition. Without a firm grasp on where your industry is heading as a whole, you won't be able to pilot the franchise through the challenges ahead successfully.

10. Being inflexible

Finally, franchisors need to ensure that theyre flexible and open to change if theyre going to grow. A new business will typically only succeed if its founder has total faith in its potential, but this faith can often make it difficult to know when to change things and when to stick to the original plan. Franchisors need to be aware of this dilemma and remain open to feedback and alternative options.

Conclusion

When starting off as a new franchisor, theres an awful lot of things to learn. A large number of these lessons will be worked out on the job and franchisors will have to be able to adapt to tricky circumstances and think on their feet if theyre going to thrive. However, the ten items listed above are some of the most common mistakes franchisors make and can be easily avoided if a little care, forethought, research and planning is put into action. While no quick list will compensate for the lack of an intelligent business mind, our checklist provides you with the necessary knowledge required to get your franchise off the ground without repeating the same old mistakes.

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