Common Mistakes Failed Franchisees Make

Restored from the Empower Network archive (2011–2017), lightly edited to meet our current advertising standards. Views are the original author’s.

Buyers, Beware: Common Mistakes Failed Franchisees Make

Purchasing a business franchise requires a lot of knowledge-seeking from you. It is at this point that you will come to learn the importance of conducting initial research, relying on authorities on their respective fields (accountants, legal advisers, attorneys and the like) and planning an exit strategy to save you from all the hassle of exiting out of plain desperation. However, just as successful franchisees follow the same formula for victory, the same goes for failed franchisees as well.

Mistakes are bound to happen and these mistakes can cost you a fortune, if you are not careful and knowledgeable enough. Fortunately, the negative and past experiences of other franchisees can act as building blocks which you should absolutely learn from.

Just exactly what are these mistakes, you ask? They are the following:

1. Bad Location

Most entrepreneurs and opportunists repeatedly say this: “Location, location, location.” Of course, this repetition was done because of its continued evidence of yielding success. Even though location determines success for some franchises more than the others, it is one factor that should be studied before the deal is sealed.

An example of this is retail franchises which rely heavily on location. On the other hand, a successful tax franchise is not dependent on it. Dependence on location is based on the nature of the business franchise that you are planning to purchase. Location also takes the consumers’ buying habits into account. Think about malls at the time of Christmas.

Are the shoppers buying for themselves or are they buying for a large number of people?

Shoppers frequent malls because it contains several shops within relatively small vicinity. This is a good location because it provides a high amount of traffic in a confined place. Always take note of accessibility as well. A shop which is inaccessible is inconvenient – it will always be overlooked. Chances are, shoppers would just pass by this store and then go to a store located somewhere else.

Thus, when trying to purchase a business franchise, it would do you well to take location into consideration.

The lesson here: Before anything else, remember, “Location, location, location”.

2. Bad Business Model

As ingenious and brilliant a given idea may be, a bad business model is a case where you should avoid purchasing a business franchise.

Most of the time, buyers tend to “plug” by buying immediately and “play” by operating the business based on the business model. This means that you have the potential to buy a franchise and then let someone manage them while making the business model as the reference. An example of this is fast-food franchises doing well since its business model is particularly basic.

What are the Best Franchises to Buy?

In fact, many of these franchises are managed by the younger members of the population who are either high school or college students. This kind of management is possible because customers enter a fast-food restaurant and expect the same routine- the same food, the same service and the same ambiance.

On this light, a restaurant specializing in fine dining is more complicated. The menu is more complex so more focus on food preparation takes into play. The customers gear more on the high-end spectrum so management of the restaurant is more comprehensive. Moreover, the general manager is accountable for maintaining public relations.

Looking back, it is quite easy to understand why buying a business franchise for a fine dining restaurant is far riskier than investing in a fast food restaurant franchise. The logic of “start small” applies.

3. Poor Public Relations

Buying a business franchise of a well-known brand is beneficial to a newbie investor because its manpower consists of those who have skills and knowledge in public relations, marketing or advertising.

This kind of manpower is suitable for skills such as strategic thinking and extensive researching for effective public relations to take place.

For example, a Taco Bell restaurant franchise is a famous brand. Their advertising campaign spans the national population. It promotes new menus, hours of operation and innovations and updates for brand promotion and awareness.

Most importantly, this takes minimal effort on the part of the franchisee. Rather, guest relations within that individual store will be your primary concern.

However, with a small business franchise, the franchisee will most likely play a huge role in the implementation of strategic communication methods. He will be the one in-charge of marketing and brand promotion. The problem lies if the franchisee has no knowledge of public relations at all. This factor is vital for guest retention and consumer loyalty.

4. Over saturation of the Market

Currently, there are nearly 200,000 franchises in the U.S. With this high rate of competition, congestion of profitable areas and bombarding of advertising campaigns are very prominent.

To solve this problem, buying a business franchise with an innovative concept is the key.

For example, the on-going trend for today is health and environment.

Thus, if we refer to the restaurant franchise example, restaurants that offer healthy product options are becoming increasingly popular. In the field of major brands, Subway Restaurants are a good example of this trend.

On the field of retail, one fad is “being stylishly pregnant”. With celebrity babies posted on the cover of nearly every magazine at every bookstore and convenience store counter, pregnancy has become the latest craze of today.

Instead of concealing, women are ready to flaunt their new physiques. This is where the occurrence of trendy maternity stores comes into rising.

Generally speaking, it is best to buy a business franchise that offers innovation. Just make sure that it is recognized as a brand and that its business model fits your situation.

5. Inadequate Capital

Most businessmen are well aware of the fact that it takes a particular amount of time and capital to build a profitable franchise. In this case, most businesses offering franchising disclose the initial costs.

Before any deal is sealed, you have the opportunity to research and understand the preliminary costs. You have the time to assess whether your finances are ready for purchasing a business franchise.

However, some buyers are completely shocked when they learn that most franchises take a minimum of two years before they are able to generate profit.

Therefore, not only is it essential to have adequate funding up-front, it is also relevant that franchisees have a fund that they can dip into for them to deal with the financial long haul. After a couple of years, when the store becomes established, the employees are trained, the tasks are delegated and the customer loyalty is won – it is only at this point that your franchise business begins to generate substantial revenue.

Buying a business franchise needs research, hard work and a lot of patience.

Hopefully, the mentioned mistakes will be fundamental in your attainment of success.