The Three Big Reasons Why Franchisees Fail and How to Avoid Them

09/05/2018 17:25 | Become A Franchisee

Why franchisees fail and how to avoid it

The 2015 NatWest and British Franchise Association survey on the franchising industry shows that, of the 44,200 franchisees in the UK, a record 97% recorded a profit. This is mainly because budding entrepreneurs buy into a proven franchise model which has been tried and tested. This, along with the support and guidance thats on offer through the franchisor and franchisee relationship, its easy to see why so many franchises succeed.

There are over 900 franchised brands operating in the UK and although most concepts thrive, investing in a franchise system is no guarantee of success. Things can and do go wrong, and there are some cases of franchisees that fail to operate profitable businesses.

Failure rates in franchising

When you review the failure rates of franchise businesses, theyre significantly lower than those of independently run businesses. In fact, the 2015 survey found that just 1% of franchises had to close their doors due to commercial failure.

This trend of strong profitability and extremely low failure rates have remained consistent for over two decades. No wonder, there was a 14% increase in franchise-owned businesses being started between 2013 and 2015. The franchise model is becoming increasingly popular for entrepreneurs who want to become the boss with less of the risks than if they went it alone.

If youre thinking of becoming a franchisee, you should take comfort in the positive statistics about the state of the franchising industry. Youll also have the strength of a reputable brand, comprehensive training and a robust franchise system.

As failure is a possibility, here are three of the main reasons that franchisees fail so that you can avoid them and become one of the franchise success stories.

1. Lack of understanding of the franchise model

When you invest in the franchise model, you should be under no illusions what to expect. If you're choosing to become a franchisee because you think it's an easy route to profitability, then you're going to be very disappointed. You must be willing to work much harder than you have in any other job. Your livelihood now depends on the amount of commitment and dedication you put into becoming a success.

2. Hiring the wrong people

When you've signed the franchise agreement and completed your initial training the eagerness to get your new business off the ground can force you to make decisions too quickly. The most significant decision you can get wrong is hiring unsuitable employees to help you run your business.

Unless you have a robust recruitment process in place with a profile of what skills and personality traits you need from your workforce, your business may suffer in the long run. Youll potentially end up with ineffective or inexperienced staff that can jeopardise the quality and consistency of service that your customers receive.

Instead of wasting time and money having to deal with bad hiring decisions, invest this into recruiting the right people the first time. Plan the interviews to allow you to assess the abilities of the candidates, and perhaps more importantly, consider whether theyre a good fit with your company culture.

3. The absence of franchisor support

The relationship between franchisor and franchisee is crucial to the overall success of a franchise. But there are instances when franchisees fail because the franchisor doesnt provide the support, advice and guidance that they were anticipating.

This can happen when a franchisor grows their business too quickly and so doesnt develop a robust enough support network. If this is the case, it can have an impact on the entire franchise network because the franchisor is too stretched to provide adequate training and ensure that the quality and consistency of the brand is being adhered to by all franchisees.

How to avoid these pitfalls

Buying a franchise is a significant investment, and if things don't end up working out, you can end up losing a lot of money. This is a worrying thought, but it's even scarier when you think that your success relies on others as well as yourself. This is why its so important to enter into the franchise agreement confident that the franchisor will provide you with the support you need.

As part of your due diligence, you should ask the franchisor some fundamental questions to find out more about the training and support that will be on offer once you become a franchisee.

  • What is included in the initial training programme and how long does it last?
  • What ongoing training do you offer?
  • How complete is the operations manual?
  • How often will the franchisor/franchise support staff visit?
  • Will there be opportunities to meet regularly with other franchisees in the network?

You should also speak to existing franchisees to find out what they think about the support they receive. Your peers are likely to give you a much more honest answer than the franchisor or the franchise brochure.

The franchisor should be willing to provide you with a list of all existing franchisees so that you can arrange to speak with them. Be wary of franchisors that try to deter you from having discussions with active franchisees or attempt to cherry pick who you talk to.

If you perform your research thoroughly, you will have a full awareness of what training and support you'll receive. But what happens if expectation differs from reality once you've signed on the dotted line? If this is the case, you should be open and honest with the franchisor.

After all, you have every right to hold the franchisor accountable for providing you with the level of support you were led to believe would be offered. You pay your royalty fees partly to have support from the franchisor so don't just sit back and accept what you're getting. The franchisor may not even realise that they're not supportive enough.

Dont let complacency be the reason your franchise fails.

Its easy to think that if you invest in a ready-made franchise system with a recognised brand, then you're set up for success. However, if you become victim to some common pitfalls, your chances of failure are increased. Do your research, build a healthy franchisor and franchisee relationship, and take your time to make important decisions that affect your business. Hopefully, youll become one of the many successes in the profitable world of franchising.

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