Knowing why franchises fail can make a big difference in the ultimate success or failure of your franchise. Here are some of the most commonly cited reasons behind franchise failures:
- Ineffective franchisors. Beware of franchisors who are only in it to make a quick buck at your expense. Contact other franchisees in the system and ask as many questions as you need to ask to determine the viability of the franchise concept.
- Family business. Avoid franchise systems that employ lots of family members. A good franchise company needs highly skilled and seasoned management.
- Unstable concept. If the franchise model is new or constantly changing, beware. It may simply be unworkable.
- Compliance rules. If the franchisor does not listen to franchisees’ feedback, it may become impossible to work in the system.
- Does the franchise company run a collaborative environment in which its employees listen to franchisee concerns, or is it a bureaucratic nightmare demonstrating low concern for franchisee results and relationships? The franchise company doesn’t get to answer this question. You need to seek out a number of franchisees and hear what they have to say about the relationship.
- Inadequate start-up capital. It may take up to three years before you really see how much money your franchise will make. But too many new franchisees don’t think that far ahead and fail to plan accordingly. Lack of funds has doomed many a franchise.
- Poor location. Location is everything when it comes to business. A highly-recognisable franchise will still fail if it is hidden away from the view of its target market. Place your franchise in the best spot you can afford.
- Market saturation. Small territories are restrictive. You also have to take into consideration other similar business in the area. Consider setting up in a different area, or buying into a different industry altogether.
- Inadequate promotion. Brand recognition alone is not enough to promote a business. Make sure you have your own marketing campaign.
- Inflated expectations. Many franchises fail simply because their owners have unrealistic expectations. Like any other small business, it requires hard work, dedication, and lots of time before you can reap the profits.
- Lack of motivation. If for any reason the franchisee loses motivation to succeed in the franchise then it is unlikely that the business will be successful. A genuine burning desire to succeed will overcome many problems.
Source: Standard Bank BizConnect https://bizconnect.standardbank.co.za