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Franchisees Can Limit Reasons for Failure

by Ed Teixeira

There are certain reasons that a franchisee fails but in many cases these reasons can be controlled.

Two weeks ago I wrote an article that described how much the franchise disclosure document has changed over the past 20-30 years. There is so much more information available in a current Franchise Disclosure Document, one could speculate on how a franchisee candidate from years ago, could do an effective evaluation of a franchise opportunity. However, candidates did and the franchise industry has continued to grow and prosper.

When dealing with the subject of evaluating a franchise opportunity, I was prompted to consider the causes of franchisee failures, especially in terms of the information that is available to a franchise prospect. There has never been as much franchise information as currently exists.

Sources of Franchise Information:

  • Federal Trade Commission website
  • Individual State websites
  • Franchise books, Amazon shows over 8,000 books in the category of franchising
  • Franchise Know-How's Franchise Buyer's Manual
  • The International Franchise Association
  • The American Association of Franchisees and Dealers
  •  Franchise advertising portals that include articles on franchising
  • Franchise articles in media such as Wall Street Journal, Fortune, Forbes, Business Week and more
  • Franchise brokers and consultants
  • Franchise attorneys
  • The Franchise Disclosure Document
  • Item 19 and Item 20 in the FDD

Considering the numerous sources of franchise information there are few reasons why an individual can't obtain useful information on a particular franchise opportunity. Now let's consider the major reasons why a franchisee can fail broken down into two categories 1. What they can control 2. Items beyond the franchisees control

Reasons for Franchisee Failure:

1. What franchisees can control

  • Under capitalized
  • Lack of required business skills needed to operate the franchise
  • Failure to work required hours or not fully committed to the franchise
  • Bad location when selected by franchisee
  • Personal problems e.g.; family issues
  •  The franchisee fails to follow the franchise program

2. Items beyond the franchisees control

  • Franchisor misrepresentation or fraud
  • Lack of support by franchisor
  • Franchise program is flawed
  • Franchise training is poor
  • Franchisor reviews and approves a poor location

When reviewing the items that can lead to a failed franchise, many of them can be reviewed and evaluated prior to acquiring the franchise. Some are totally within the franchisees control such as being undercapitalized. Considering the wealth of information that's available to a prospective franchisee, there are ways to reduce the risk of failure and many are within the control of the franchisee.

 

2015 FranchiseKnowHow, LLC

Ed Teixeira is the President of FranchiseKnowHow.com and Chief Operating Officer, FranchiseGrade.com. He is a former franchise executive and franchisee. He can be contacted at 631-246-5782 or at  franchiseknowhow@gmail.com

 

 

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