Franchise System Failure
How to Avoid Buying a Franchise That Might Go Under
Statistics
show that your chances for success as an entrepreneur are greater if
you start your new business as a franchisee rather than opening a
business all on your own. However, there are times when even
franchise systems aren’t successful and around for the long
term. Of course there are no guarantees but you can boost your
chances for finding a franchise with stability by doing some
additional research.
A
franchise company usually begins when someone has a desire to bring a
product or service to a wider audience. One or more units, often
called company stores, are opened so the product or service can be
tested, refined, retested and improved. Once the company stores have
experienced some success, the company will begin early franchising
efforts.
Opening
the first 10-25 franchised units is often the most difficult phase
for a franchisor. The company will have to learn how the concept
works in a variety of locations and with a variety of franchisees.
Marketing can be tried on a larger scale and there are hundreds of
details to be modified, changed, refined and locked down.
Once
this initial group of franchisees experiences financial success, the
franchisor will open up franchising to a larger group. If you are a
risk taker, feel free to jump in at any of the earlier stages of a
franchisor’s development. If you’d rather avoid risk,
confine your research on potential franchise opportunities to those
companies that have survived the initial stages and have at least 25
or more successful franchise operations in place.
Yes,
there are companies that are solid gold from inception. But as a
general rule, the earlier you get involved in any business, the
greater the risk. Not only that, by joining an established company
you will also avoid many of the bumps along the road. A franchise
that has reached a modest number of successful franchisees will have
added sufficient infrastructure to support you and the
marketing/branding efforts will help draw customers to your location.
By
focusing your search on those companies who have reached this stage
of development, you can increase your chances of success in finding
one that will be around for the long term.
Validating the Franchise
Another
way to increase your chances of franchisee success is to talk to the
existing franchisees in a system. This cannot be overemphasized. The very best way to learn about a franchise system is to talk to a
variety of franchisees and ask them very pointed questions, such as whether they reached their financial goals as a franchisee.
You want to find out actual earnings, not pie-in-the-sky
expectations. New franchisees are notorious for having unrealistic
expectations about the profitability their business will experience,
until they’ve actually been in business for awhile.
The
next question to ask existing franchisees is about the overall
attitude of the franchisor about the business itself. What you want
to see here is an attitude from the franchisor that their success is
based on the success of the franchisees. In general, the more the
franchisor is willing to help the individual franchisees become
successful, the greater the longevity of the company.
Support from Franchisor
Once
you’ve talked to existing franchisees and gotten good feedback
about the company you will want to take a close look at the
infrastructure of the franchise company. Your success as a franchisee
will depend on the dedication and expertise of the operational
support people so find out how long they’ve been with the
franchisor and what previous experience they’ve had. Your
conversations with existing franchisees should help you learn whether
these people are competent and accessible but you will also want to
talk to these support people yourself to be assured of compatibility.
The operations and support people are there for your benefit and you
want to make sure you will get your money’s worth out of the
association.
While
there are no guarantees that a franchised company will be around for
the future, there are ways to position yourself for a greater chance
of success. When doing your research, keep in mind that a company
that has reached at least a modest number of units (a minimum of 25
is suggested) has a better chance of long-term survival than one that
is new to franchising. If that company also has happy and successful
franchisees and the right attitude toward mutual success, then you
should feel comfortable the company has a very good chance of
survival.
When
making a decision as important as purchasing a franchise, you
definitely want to be sure that the company will be around for the
long term and that you will get the full benefits of being part of a
franchise system. The bottom line is that just like any business,
franchise companies can also fail. However, you can minimize your
chances of joining a franchisor that won’t be around by doing a
complete and thorough investigation of the company. This will take
more work on your part but your reward is that you will be better
protected from buying a franchised business that might go under.
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