Top 5 reasons for a franchise to fail
Though the franchise business model is safe in terms of already established brand name, policies and procedures, yet these factors only lessen the chances of failure. Remember, it is not taken off the table.
Understand, franchise is an avid partnership in itself; the stakes of success as well as failure are randomly distributed. However it is imperative for a franchise to consider both sides of the coin if they wish to avoid any mishap. Your Retail Coach empowers you to observe some of the major concern areas that you could address and avoid the D-day. Here they are, focus and have a good look!
1. Wrongly skimmed options
Even though both the parties feel that they did their due diligence before venturing out, yet a franchise succumbs to failure. In most cases it happens either because your discriminative faculty did not play its role well or even brutal than that, you were not realistic or honest about it. For example, your franchise requires building relationships but you are not a people's person.
This calls for a fine and unbiased skimming method. It most cases than often it becomes difficult to take a holistic approach to the situation when you are party to it. While we encourage you should proactively engage in talking to the current franchisees and attending expos. Questions like, do you have the necessary skills, is your franchisor agenda compatible with yours, cost effectiveness etc; are better answered by experts or professional consultants. It remains equally crucial to self-analyse and adapts when called for.
2. Atrocious financial forecasting and planning
We all know how sand slips faster from a tightly held fist. Unfortunately, we forget that the same principle applies to all precious things including finances. Sometimes in order to remain cost-effective, we fail to project potential capital needs and this act leads to the franchise being undercapitalized.
Another important mistake we make that leads to insufficient funds is not being able to distinguish between cash flow and profits. Your business could be running well and making profits on the balance sheets, however, if you are not being paid regularly by your customers the cash flow suffers and you are unable to pay bills or plan reinvestments.
Financial planning needs to be uptight not just while execution of the model, but should be even precise during conceptualization and the maintaining phase of your franchise business.
3. Complacency issues
At the time of decision making, entrepreneurs usually check the complacency. Wondering how that could lead to their failure story? Well, though we take measures to check how compatible is the franchise franchisor relationship; we pay less or probably no attention to the most important party involved. The Market! Yes, you read right! One must never forget, it is always the end customer that changes the game. Market demands are ever-changing and so must be your approach as a franchise or a franchisor. The inability to adapt to the current market trends on part of either party is bound to incur heavy losses.
4. No or poorly set standard operating procedures
Chuck Palahniuk has beautifully quoted "I think standardization is really the first step to something being commoditised". If you have a commodity to sell, standardisation is a must. Lack of set processes leads to poorly allocated resources which indeed is the most potent ingredient to ruin even the best of business models. Successful franchises have well formulated and organized processes with maximum flexibility minimal disruption.
Your Retail Coach encourages the formulation of crisp yet flexible Standard Operating Procedures for all types of business and across all domains. Yours could be a proprietary, small, medium or large scale enterprise; having a superior quality of SOP is a must have. Never ignore, that a flawed SOP is sure to lead to difficulty in execution and can in no time cause franchisee failure.
5. Failure on the part of Franchisor
While it is a good thing to introspect and focus on our own faults, it is important to weigh all the aspects equally. Yes, you got it right! You can blame the franchisor equally. We often falter in assessing the franchisor's stake and responsibilities in advance because they are rarely articulated until after the expectations have failed to have been met.
Although not primary, few reasons leading to failure could be;
● Defectively trained or supported franchise
● Lack of demand on account of poor product/service
● Faulty franchise program
● False business promises and projections
The accountability of success or failure lies with both the franchise and the franchisor. Though it is tricky to specifically weigh who did what, it is safe to check all stakes before taking the final leap. As a franchise, you must always remember that you pay an ongoing royalty and must demand an ongoing support. On the other hand, a franchisor must have the intent and skill to properly support and upkeep the franchise. Do not overlook, it is your brand name after all.
All these evaluations boil down to taking appropriate measures before the damage is done. We can help. However, if that ball has passed, it is of the greater essence to learn and take the blame in the right stride. We could help even better! Haven't you heard that a business is just like a gamble; luck for a fool, but a well-calculated probability for the winner!