Franchise businesses are known for being resilient. But that’s partly because they have a strong internal system of like-minded franchisees who want to see the brand succeed.
As much as it’s the responsibility of the franchise owner to vet and screen prospective franchisees, it’s also the franchisee’s responsibility to ensure that they carefully study the franchise opportunity in question to ensure that they approach it with eyes wide open.
The alternative is making a costly mistake that can cost you your business, finances and well-being. In this article, we explore the top 13 franchise mistakes that prospective franchisees make when starting their franchise journey. Let’s take a closer look.
1. Neglecting thorough research and due diligence
The research and due diligence process should take prospective franchisees and interested parties at least a month to complete. During this process, you will be going through every single aspect of the franchise business in detail. From accounts and costs to the t-shirts your staff is expected to wear and everything in between.
If you fail to carry out this due diligence, you may end up investing in a franchise opportunity that’s not profitable, that does not have the reputation that it indicates it has, and you’ll feel left out and alone wondering why you made this franchising mistake in the first place.
2. Choosing the wrong franchise opportunity
With literally thousands of franchise opportunities to choose from, it may be tempting to go with your gut or go on a whim regarding an opportunity that seems to be both profitable and somewhat hands-free in terms of management. Although this does sound nice, practically anything that is too good to be true is.
So, you need to choose an industry (say coffee shop franchises), study each of the competitors within that industry and then decide on the opportunity that speaks to your personal and professional aspirations.
3. Underestimating financial considerations
Many franchisors present their franchise opportunities as low cost and this is often the case with a low and attractive franchise fee. But what prospective franchisees need to know is that it’s not just the franchise fee that they will need to pay.
It’s also the overall investment cost for the store or location build-out, purchasing equipment and inventory, hiring and training staff, and everything else that goes into running a franchise business.
If you haven’t studied the full costs, and, in some cases, if you don’t have liquid capital or a certain net worth, the chances are that your franchisor will reject you as a candidate for their business.
4. Disregarding the business plan and strategy
Franchise owners spend a great deal of time and resources on creating their business and ensuring that it works successfully.
On the other side of the coin, franchisees interested in buying a franchise opportunity need to show that they are capable of handling all the associated responsibilities by crafting a carefully developed business plan that aligns with the franchisor’s strategy.
However, a prospective franchisee who disregards the importance of the business plan is unlikely to secure the trust of their franchisor or secure the funds necessary to get their business off the ground.
5. Disregarding training
Both franchisors and franchisees who disregard training are going to see the business suffer. That’s because training establishes the basic product or service standards that customers across different locations have come to expect from the brand.
When franchise training isn’t carefully planned and thought out, and when a franchisee doesn’t take it seriously, they will be unlikely to carry out the business model to the “T” and this can result in brand dilution, service dissatisfaction, loss of customer loyalty and overall, leading to losses in revenue.
6. Neglecting proper legal and contractual review
Proper legal and contractual review are an integral part of franchise success. When all the t’s are crossed and i’s dotted, that’s the start of a solid relationship where both parties’ rights, responsibilities and obligations are clearly defined.
However, legal documents with ambiguities, those that are prepared in a rush or those that require numerous appendices and amendments are much less likely to see the light of day or give any indication as to the clarity that’s needed by both parties to secure a strong and legally sound relationship.
7. Ignoring effective communication and collaboration
Franchisees enter the franchisor’s franchise system for the short to medium term. This can last anywhere from five upwards of 10 years. The relationship is therefore a close one and both parties need to rely on each other and communicate any difficulties or ways for improving the business.
When the chance to communicate is presented and it is not taken by either party, that’s the first sign of discontentment and a sign of more trouble to come further down the road.
Poor communication and collaboration could also mean that different franchisees manage their franchise units differently to what the franchisor intended and it’s another way of diluting and damaging the brand’s public image as well as relationships between the franchisor and franchisee.
8. Inflexible approach to local market dynamics
Markets change every day. Sometimes, these changes are small and almost unnoticeable. Other times, they are more serious, such as job losses, the onset of a recession, hikes in interest rates, rising inflation and so much more.
When a franchisor continues running and approaching their business as if they aren’t affected by the market conditions and dynamics, the chances are that they will soon realise that they do not operate in a vacuum. This inflexibility can lead to less agility in adapting to local market conditions and this can make the business suffer.
9. Failing to adapt to changing consumer trends
Inflexibility to changing consumer trends is another important franchising mistake that both franchisors and franchisees can make. On the franchisor side, they need to study trends all the time and make sure to adapt to them. For example, bubble tea is a recently imported idea in the UK and it’s gained a lot of attention.
But several years ago, there was no bubble tea on the market. Franchisors who saw an opportunity managed to become successful and reap the rewards. Meanwhile, those that didn’t are not seeing the revenues that they would like to.
10. Neglecting brand consistency and quality control
In franchising, brand consistency is among the most important factors next to quality control in the parent brand’s overall marketwide success. Whether a person is in London and buying a Subway sandwich or in Shanghai, they expect the same ingredients, the same quality, and the same flavours.
Anything less than that means that you’re bound to lose a loyal customer. And as we all know, new customer acquisition is much more costly than retaining existing ones. Therefore, brand dilution can cause major harm to the business if franchisees do not properly oversee the processes of quality control as outlined in their operations manuals.
11. Lack of effective franchisee screening and training
On the franchisor side of the franchising coin, franchisors have a responsibility to themselves and their entire franchisee network to ensure that they screen each new franchisee prospect that they are considering entering into business with. This means vetting, background checks, contacting references and more to ensure that the person is really who they say they are.
As for training, this is the cornerstone for a franchisee’s success and if any elements of the process are ignored, done half-heartedly or done with poor attention to detail, the franchisee will be unsure of how to run their business and the franchisor will suffer due to the franchisee’s failed attempts to run the operations without truly knowing how to do so.
12. Overexpansion and rapid growth
Every business owner thinks that rapid growth is a good thing. But that can become problematic in franchising when overexpansion happens too quickly and without a careful road map set in place to be followed with different milestones to be achieved in increments.
This is especially the case when franchisors seek to expand to new locations such as in overseas territories but are not fully up to speed with the market details and intricacies there. As such, expansion should be approached carefully and steadily as opposed to too fast as if you’re going to miss the gold rush.
13. Ignoring franchisee feedback and concerns
The last franchise mistake on our list is that of franchisors ignoring or not paying attention to franchisees’ feedback and concerns. Franchising is a two-way street and communication, as we said earlier, is vital between both parties. Sometimes, a franchisee may have a suggestion on how to improve a certain process or aspect of the business.
In other cases, they may be struggling with handling their staff or something else. Whatever the problem in question may be, a franchisor has a responsibility to ensure that each franchisee feels heard and understood so that solutions to the problem can be discovered or new ways of doing business can be developed with the help of both parties.