According To The Recent Survey, The Failure Rate Of Franchising Is Less Than 10% In Contrast To Over 90% Of Independent Businesses That Fail.
Franchising offers new business owners the support of a good brand, initial training and solid systems. However, to attain success is not easy as there are some unhappy stories in franchising too. Below are certain reasons identified for the failure of a franchise business which any entrepreneur should avoid
A proper business plan should be a roadmap to success. Franchise buyers too often go with a tokenistic plan written by an accountant or rely on the franchisor’s tools. A business plan needs to be unique to the franchisee and their projections for their business’ performance. The franchisor should be involved in the planning process. He/she should analyze and constantly monitor business plans submitted by franchisees to ensure that the franchisee operates their business according to the plan.
Mismatched expectations are not only the reason for failure in the franchise businesses but also known as the most common disputable subject between the franchisor and the franchisee. To avoid such issues, it is better to communicate well regarding what you can offer to the franchisors and whether the terms and conditions laid down by the franchisor are acceptable to you or not. At times a lucrative contract can also, later on, lead to mismatched expectations. If a franchisee is unable to keep up with the expectations of the franchisor, it will surely turn the relationship sour.
Unwilling to learn
The franchisor has been in the business for years and understands the market and target consumer well which he further wants to transfer to the franchisee to make the business better. However, if the franchisee is unwilling to learn, he will stop growing and it will further harm the business. Most of the franchise programmes arranged by the franchisor fail to bear any fruit, as the franchisee is not receptive to the suggested ways.
Inadequate marketing programmes
Necessary marketing at regular intervals is the key to success for any business. An ineffective marketing strategy of the franchisor is itself a proof that he is not taking the business seriously.
Not keeping up with market trends Keeping up with the pace of change is the key to success in any business. The consumer market is ever-changing and needs to be followed well to keep your business up-to-date. A good franchisor not only knows his market well but also gets regular R&D checks done to keep abreast of the latest trends.
Not maintaining operating standards
Standard Operating Procedures is the keyword in a franchise operation and the way to get consistency in all the operations. If McDonald's franchisees do not maintain the operating standards, they would not have achieved success. In the fast food business, operating standards act as the most crucial part. Customers are attracted to only those food chains which are loyal in maintaining operating standards. In franchising, there are set parameters which form the business model and if a franchisee follows them religiously then only he can tread the path of success.
Lack of capital
A leading cause of a franchisee failure is the lack of working capital. Franchisees who start operating businesses without adequate working capital will be unable to pay their bills when they fall due if the amount of cash coming into the business is not greater than the amount of cash going out. A lack of sufficient working capital can be the result of a slow start-up or the franchise operation requiring more working capital than the amount disclosed in the franchise disclosure document. Even if the business is profitable, it can still fail if its customers have not paid it on time and it runs out of money to pay its own bills when they fall due.