Why Franchises Fail And How To Bulletproof Your New Venture

Why Franchises Fail And How To Bulletproof Your New Venture

 

Running a new franchise can be a foolproof way of starting your own business. The franchisor would provide all the support and training that you would need. The product or service that you would be selling would already have an established market and all that you would have to do would be to manage and promote the venture efficiently.

Although this is the experience of a vast majority of franchises, some new ventures do face teething problems.

Your franchise would have to establish itself and gain the acceptance of customers. You should remember that while the franchisor’s help and guidance would be available at all times, it would be your responsibility to generate business.

Despite the initial challenges that new franchises face, most of them quickly learn the ropes and become profitable. The franchisee is able to pay off the loans that have been taken to finance the venture. Even after meeting all the expenses, there is a cash surplus. This profit helps to build the franchisee’s personal wealth.

What are the different types of problems that new franchises face and how can you make sure that you are able to overcome them?

1.Underestimating the time and effort that you have to put in

Most individuals who are planning to buy a franchise take the precaution of visiting an establishment working under the same franchisor before taking a final decision regarding their purchase. What they see is a business that is functioning very smoothly. They don’t realize the extent of effort and hard work that has gone into reaching this stage.

You can be fairly certain that there will be times when you will have to make an extra effort to ensure that business targets are met. As the owner of the venture, you will be responsible for every aspect of its functioning. You may have people to help you, but it will be your duty to ensure that the franchise keeps all its commitments to the franchisor.

Be prepared to work long hours and sacrifice some of your personal time. The hard work that you put in will help to build and strengthen your business.

2. Not having enough funds to see you through a lean period

When you are preparing the budget for your new franchise, you must remember to build in a cash buffer to help you meet unexpected expenses.

Remember that a lack of funds can damage your reputation. If payments are delayed, suppliers may insist on cash terms. This would result in the need for even more working capital.

It is absolutely essential that you have a cash reserve to fall back on.

3. Not following the franchise system

New franchise buyers often make the mistake of thinking that they can operate the venture independently. They don’t realize that they have to function within a very strict set of rules. The franchise agreement that they have signed will always specify the exact manner in which they have to operate.

All that you have to do is follow the rules that have been laid down. If there is any area of the franchise’s functioning that is unfamiliar, all that you have to do is ask the franchisor.

4. Finalizing the franchise without professional help

Make sure that you understand every clause of the franchise contract before you sign on the dotted line. You will need to engage the services of an attorney for this purpose. It is well worth the extra expense if you consider the fact that you will be investing tens of thousands of dollars or even more of your money.

The fine print of the agreement is very important. What are your obligations as a franchisee? It is useful to keep in mind that many of the points covered in the agreement will have a financial implication.

Study the agreement carefully and have the clauses that you don’t understand explained to you. Consider a worst-case scenario. Do you have the funds to meet all your obligations if the business does not progress as planned?

Spend adequate time on research

Every additional hour of research that you do before you buy a new franchise will help you to anticipate the problems that could arise and to prepare for them. Speaking to several existing franchisees is probably the best way to gain an insight into how the business really operates.

 

Photo by Mike Petrucci on Unsplash

 

 

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