1. Insufficient planning
A failure to plan is a plan to fail. Despite the obvious wisdom of this saying, many franchisees still fail to prepare a business plan.
A business plan should be a road map that shows the way to achieve profits by certain milestones. Getting involvement of the franchisor in the business planning process and get analysed and constantly monitored your business plans via submitted before HO to ensure that the franchisee operates their business according to the business plan suggested by HO.
2. Insufficient working capital and reinvestment
A lack of working capital and a lack of reinvestment are among the most common causes of business failure. Franchisees who start operating businesses without adequate working capital will be unable to pay their bills when they are due if the amount of cash coming into the business is not greater than the amount of cash going out.
Even if the business is profitable, it can still fail if its customers have not paid it on time and it runs out of money to pay its own bills when they are due. Understanding the difference between cash flow and profit can mean the difference between surviving and failing.
3. Unrealistic expectations
The best way to test whether or not a franchisee has unrealistic expectations about the future of their business is to examine their business plan. This will provide an essential insight into their financial expectations and when they expect to achieve them, but there may be other unrealistic expectations based around training, support and the flexibility of the business model, among other things.
4. Other distractions (or stealing from themselves)
Sometimes the cause of a franchisee’s business failure is not related to the franchise at all, but something else altogether. If a franchisee is comfortable with the performance of their business, they may look elsewhere for a challenge and find another business or interest to keep them occupied. Often this will take too much of the franchisee’s time and money away from the franchised business to suit the new venture.
Where this occurs, franchisees effectively steal from themselves by taking valuable capital and human resources from one business to support another. When the left hand robs the right hand, both hands risk losing the lot.
5. Failure to evolve
The market in which the franchisee’s business operates is constantly changing and if the franchisee doesn’t change with that market, they will ultimately become irrelevant. Fortunately for the franchisee, they are not alone on this journey of constant change, as the franchisor must also evolve to keep up with the market as well.
6. Failure to follow the system
Despite investing in a franchise with a prescribed way of doing things, some franchisees think they can do it better and instead of following the franchise system, they buck the system and try to do their own thing. Franchisors are the first to admit that franchisees can come up with excellent ideas to improve a whole system, but if some of their ideas are completely at odds with the brand and values then the franchisee may as well have bought an independent small business instead.
Not only do franchisees who fail to follow the system risk censure and even termination by their franchisor, they often sabotage their own business in doing so, cause sales and profits to decline.
7. Failure To Change
In today’s fast-paced world, it is essential for franchises to stay and keep themselves updated to successfully meet their customers’ needs. What they now want, what they now prefer, the franchises have to evolve accordingly. You cannot just run your operations and systems the way you successfully used to do so a year ago.
You need to understand for the sake of your franchise that evolving is inevitable. Sure, you may face some issues at the start, but once you and your staff members get into the routine, following the new changes will come naturally. The franchise market is constantly changing. It is essential that franchises adopt change with the trends and market. Otherwise, they will become irrelevant and eventually lead to failure.