Why Franchises Fail: Avoid These Common Mistakes

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Why Franchises Fail: Avoid these common mistakes

Whether you are a retailer looking to develop your business into a franchise, or an experienced franchisor with 30+ stores, shit can hit the fan at any stage…

Our biggest piece of advice to franchisors is to be proactive. As we often say, achieving success in this industry relies on seeing the headaches BEFORE they materialise. In this article, we break down the common pitfalls in the franchising industry, so you know exactly what to watch out for:

Lack of research

Have you created a solid business plan? Have you conducted financial modelling to ensure profitability for both franchisee and franchisor? Are you bank-ready? Do you know the legal and HR obligations of running a franchise? What digital systems will you incorporate? What sort of marketing campaigns will you enact? What sort of insurance will you implement? Where will the next franchise be located? What sort of fit-out will this require? How will you exit franchisees when the time is right?

There is a LOT to digest when it comes to franchising, and it’s not something you can just jump into. Talking with other franchisors is a godsend, particularly those who will tell it to you straight. Going one step further than the rest and accessing a Franchise Development expert will add a lot of value to the process – also likely preventing a few grey hairs in the process! 

Lack of working capital

Trying to do a lot with a little is a recipe for disaster. We often see business owners spend all their cash on developing a franchise, just to be left with nothing to actually launch it into the marketplace. That’s why we added a Franchise Finance team to our collective, ensuring both the franchisors and franchisees we work with access enough working capital to launch and grow, particularly in those early stages. 

Poor-fit franchise partners

We know you have a favourite franchisee. We sure did in our time as franchisors. The trick is to replicate them! 

Before our data-led Franchise Recruitment strategy came onto the scene, franchisors were stuck with a flimsy process that had them crossing their fingers and hoping for the best. Trust us, it doesn’t have to be this way. 

By incorporating a streamlined recruitment process and utilising profiling software, you can be confident that you are getting high-quality leads for your business. It works both ways too, as the process allows the franchisee to see, in detail, all the ways in which they are a great fit for the business. Watch our latest video for more info on this. 

Poor location choice

There’s no point in expanding your business if you don’t know which locations will work best for your particular offering. Plus, if rent and occupancy costs are through the roof, you won’t be able to invest in other areas to help develop your business. 

Plugging in external support such as Location Intelligence and Retail Property services can help to relieve some of the stress, risk, and hassle that comes with this process. 

Complacency

We have seen it time and time again. In Australia, there are a HUGE number of franchise businesses with just 1-15 stores, and very little in the 30+ range. We believe that this comes down to complacency. If your ambition is to outgrow your competitors and see how far your business can go, it requires you to evolve. 

One issue we often see is the distance between the franchisor and the franchisees lengthening over time. But, getting them on board for growth, and encouraging collaboration –  is actually a key ingredient for growth that a lot of franchise businesses neglect. Our Franchise Development team has plenty of ideas in this area. 

Often, it’s hard to see the inefficiencies and out-of-date practices from the inside, and consequently, things get swept under the rug. For example, we’ve seen Franchise Agreements that haven’t been updated in 10 years! 

The lesson? Make sure you are consistently refreshing and updating your system – and be sure to use an outside set of eyes for this too. 

Since starting BDC Partners, we are proud to have helped business owners avoid these common mistakes, and achieve sustainable growth and development for their franchises. 

If you are keen to chat about your business, get in touch using the form below.

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