Top 5 Reasons Franchises Fail

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Reasons why franchises fail

Originally posted on 04/11/2017. Updated on 17/05/2019.

There is an abundance of benefits to choosing the franchise route when starting your own business. You will be working under an established brand with an existing customer base, and proven business and operating model. There is a lower risk of failure and the products or services you will offer have already established a market share. But like most things in the business world, where there are advantages there are always going to be some drawbacks. This is why carrying out in-depth research into the franchise before you make any commitments is paramount. But even after taking precautions, there are still a number of reasons why franchises fail.

So, here are our top five reasons why franchise fail, and what franchisees can look out for to avoid this.

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1. Inadequate Business Model

It is important for a business’ franchise model to be easily replicable when franchisees are left to run their own version of the franchise. Therefore, all aspects of the business must be recorded in a way that enables franchisees to imitate the template. Just because a business is successful is doesn’t automatically mean that it is franchisable. A business may be profitable due to the skills, expertise and persona of the owner, and it might not be possible for these to be replicated by franchisees.

If a business owner rushes into franchising their business, they are at risk of many of the components not being strong enough to endure the franchise model. If the system is not robust or easy enough for franchisee to follow, then it is almost inevitable that the franchise will fail. A franchisee with no previous experience in the industry or of owning their own business should be able to use a well-documented and supported franchise model so they can be a success.

2. Franchisee Not Suited to the Franchise

Despite franchising often being an easier option to starting from scratch, franchisees will get a big surprise if they haven’t anticipated the sheer scale of hard work and commitment that being a franchise unit owner entails. It’s important for franchisees to fully understand this. Not all franchises are successful and things can go wrong further down the line. Therefore, if you are entering the franchising world solely for the perceived guarantee of success, then you’re most likely not cut out for being a franchisee.

When looking at all of the exciting franchise opportunities on offer, individuals could get carried away and think irrationally. Of course, being incredibly passionate about an industry, a brand or their products is going to drive the direction of which franchise you choose to invest in. However, the reality of running your own business selling these products or services is much tougher than liking them as a consumer. In order to be a successful franchise owner, you need to be dedicated to the future growth of the brand, and you may not be equipped will the necessary skills. Regardless of how much time and effort you put into making the business work, unfortunately, some individuals just don’t carry the essential characteristics for this role. Don’t be too disheartened though, because skills and knowledge can also be learned and just because you aren’t ready to run a particular franchise now, doesn’t mean you won’t be ready in a few years.

Therefore, with this in mind, before applying to be a franchisee, you should conduct a self-assessment to establish whether you carry the personality traits to be a successful franchise unit owner. Leadership skills are, of course, essential in being able to manage your business processes and your team. However, it is also important to be able to be a follower. In order for a franchise to work, you need to follow the instructions, guidelines, rules and regulations set out by the franchisor. So, if you don’t like the thought of having someone else to answer to or conforming to rules, franchising might not work for you.

3. Insufficient Training and Support

Before making any commitments, you should review the quality and quantity of training provided as it is stated in the franchise agreement and the Franchise Disclosure Document. If it doesn’t seem clear, doesn’t seem like enough or doesn’t compare to what is offered by similar franchises, then take a step back and reflect on whether this is a franchise you are happy to invest your hard-earned cash in.

More well-known, larger brands will probably have a tried and tested training programme that has proven successful for many previous franchisees. A new franchise may not have fully established a comprehensive training programme covering operational and general business training. So, despite the thought of being part of a new brand that may become incredibly popular, have a unique offering and is fresh enough to capitalise on the latest trends, be wary of whether they have good training and support for their franchisees.

4. Competition

Observe the competition in your local area; having too much or too little could both have a detrimental effect on the success of your franchise. Too much competition will make it hard for you to make your mark in a sector that is already crowded by other brands. However, if this does happen to be the case, develop your USP so you can differentiate yourself from the competition. At the same time, too little competition could suggest that there is not a great enough demand for your offering in the area. Therefore, establish whether this provides you with room to capitalise on the uncrowded marketplace or whether selling your products or service simply isn’t viable.

5. Not Enough Working Capital

When you invest in a franchise, you pay the franchisor for the right to operate under their brand name and are essentially reimbursing them for recruitment and training costs. Be careful not to misjudge how much everything costs, as even after you’ve paid the initial investment, there are still ongoing expenses to consider.

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