Franchise Success Rate – Key Mistakes to Avoid
There are several missteps that can negatively affect the success rate of a franchise and leave any franchise buyer very dissatisfied.
As you go through the franchise search process, you will come across people who have made mistakes starting their franchise.
In most cases, they will fall into several predictable categories. As you talk to them, keep the following items in mind:
Make sure you have enough capital
It is true that before you buy a franchise, you will receive a detailed disclosure document (FDD) that outlines the costs of the business.
On top of that, you will have numerous conversations with the franchisor who will do everything they can to make sure you are financially qualified to own a business.
Additionally, you will work on your business plan with a bank to secure financing and ensure you have enough cash flow to be successful.
And yet, every franchise system has franchisees that have failed because they simply didn’t have enough money.
In the end, it is you who is in charge of managing your franchise and your money. To improve your franchise’s potential success rate, make sure you have a budget that’s flexible enough to handle various situations, set up a contingency fund, follow the manual, and watch every expense like a hawk.
Don’t save money on marketing
It’s inevitable that anytime the economy slows, revenue declines, or you lose a big customer, there will be pressure to cut marketing spend.
It’s certainly easy to do, most of the time. Just don’t buy ads for a few months and you’ll have money in the bank, right?
That is, of course, is a mistake. Unless you have an amazing word of mouth or viral campaign, you will feel the long-term negative impact of cutting marketing spend very quickly.
The good news is that a lot of franchise companies realize that and often require their franchisees to spend a certain amount on marketing each month.
Remember, you must attract new customers to grow your business. Customer acquisition costs are about the same as the cost of goods sold at many businesses.
Meet the goals you set for yourself before buying a franchise and look for savings in other areas.
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Talk to existing franchisees before buying a franchise
This is a big one. The most current or former franchisees you speak to best. You can get their contact information from the FDD.
Take your time in this process and be sure to talk to 5, 10, or even 15 franchise owners on each system you validate.
Go to the company’s annual meeting if the franchisor allows you to. Ask tough questions and focus on financial performance data.
If you buy a franchise after talking to only 2-3 people, and the business doesn’t work out, you alone will be to blame for not doing enough.
In the end, existing franchisees are the true franchise experts who can give you the best insight into a franchise’s likelihood of success.
Accurately estimate your people management skills
People management is the biggest challenge for many small businesses. As a potential franchise owner, you need to realistically assess your capabilities in that area.
Sure, the franchise company can train you and provide you with day-to-day guidance regarding the management of your workforce.
However, it is up to you to build a reliable, productive and efficient team. If you don’t have experience in that area and aren’t looking for that kind of challenge, try to focus on franchise opportunities that require a minimum number of employees.
Buy the Right Size Franchise
Be sure to accurately assess your future plans and income goals as a franchise owner. You’ll need to make sure that the franchise you plan to buy can offer the size of the territory and growth potential you’re looking for.
Sure, you can grow one unit/territory at a time. However, the availability of territory is rarely guaranteed by the franchisor, and you will never be in a better bargaining position than before you signed your franchise agreement.
Size plays a big role in a franchise’s success rate, so it pays to have your entire plan for future growth on the table before you buy.
Follow the Franchise System
Not following the system is probably the worst mistake you can make and is the real culprit behind most distressed franchise placements.
Once you buy that franchise, it’s perfectly normal to feel confident in your abilities and future prospects.
However, don’t assume at this point that you can do more than the franchisor to make your business successful. Stick to the operations manual, believe in the system.
Don’t worry; You’ll have plenty of opportunities to engage your entrepreneurial spirit, but leave any changes to the business model to the franchisor.
In short, franchises have a much higher success rate than independent businesses and offer a number of “safety nets.” However, that does not mean that its success is a given.
Also, it’s important to keep in mind that during the franchise search process, it’s often more beneficial to talk to people who have had difficulties in their efforts to start a business.
Your journey can provide a valuable lesson on what contributes to a franchise’s success rate.
The goal, in the end, is to avoid the problems mentioned above. As a result, you will greatly improve the potential success rate of your franchise business.
