Why Some Franchisees Fail
Before considering a franchise opportunity itís important to know why a
franchisee can fail. Armed with this information, it will make it easier to
determine if youíre suited for a particular franchise.
If youíre thinking of buying a franchise or are focused on a specific
franchise itís important to understand the reasons why franchisees fail. Having
this information will help you in your pursuit of a franchise and will improve
your evaluation of individual franchise opportunities.
Here Are the Reasons Franchisee Can Fail:
- A lack of working capital necessary to operate and
sustain the franchise.
To avoid falling into the trap of being undercapitalized be sure
to do a break even and cash flow analysis. Set a cap on how much
you will initially invest in a franchise and add a cushion of
20% to allow for unexpected problems. Ask current franchisees
how long it took them to reach breakeven and whether their
start-up costs were consistent with the FDD investment schedule?
- The franchisee lacks the business skills to
successfully operate a particular franchise.
The first step is to ask the franchisor if they have a profile
of an ideal franchisee and what the components are. Ask
yourself, is this a business you truly believe you can operate.
Although a franchise has operating systems and processes, itís
not a guarantee of success. Donít believe the hype about a
franchise being low risk just because itís a franchise. When
speaking with franchisees, ask if there were skills that they
didnít realize they needed.
- The franchisee has unrealistic expectations.
Once a franchisee gets to Discovery Day more than likely they
are moving towards purchasing a franchise. The danger is to get
caught up in the hype with the expectation that success will be
easy to achieve. The problem is that most franchises require
lots of long days and hard work. Having a successful franchise
is more difficult than most people realize.
- The franchise has weak demand for the product or
Whether market demand is weak or the franchise territory is too
small, difficulty in generating sales is one of the major
contributors to failure. In many cases hard work and added
working capital canít solve this problem. Be wary of new
franchises that lack a track record. In terms of mature
franchise systems be sure to speak with a number of franchisees
in order to determine if generating sales is not an issue.
- The franchise concept is flawed.
Some franchise programs are inherently flawed and just donít
work very well. The best way to identify a flawed franchise
program is to carefully evaluate the franchise and speak to as
many franchisees as possible. In addition, engage a franchise
consultant or franchise attorney to do an in-depth examination
of a franchise program.
- The franchisor fails to support its franchisee.
A franchisee depends upon their franchisor for support and
assistance. In some cases a lack proper support can prevent a
franchisee from reaching the next level. During the franchise
evaluation process ask franchisees if they are receiving the
services and support they were promised. If the answer is no,
then has this lack of services and support negatively impacted
the franchisees performance?
These are the major reasons why franchisees fail. Having this information
will help you to evaluate a specific franchise opportunity and become a
2013 FranchiseKnowHow, LLC
Ed Teixeira is the President of FranchiseKnowHow, LLC. He
can be reached at firstname.lastname@example.org