Failed-franchise

5 Common Reasons for Franchise Business Failure

Buying a franchise may be preferable to starting your own business for a number of reasons. For one thing, you don’t have to come up with some grand idea that nobody ever thought of before. When you purchase a franchise you’ll enjoy built-in products or services, an established consumer base, developed practices and policies, marketing materials, and even most of your business plan completed for you. In short, there’s a lot to love about the prospect of buying into a franchise. Unfortunately, opting to go this route when launching your own business, so to speak, is not without potential drawbacks. And even with all of the help you’ll get from the franchisor in the process, success is far from a foregone conclusion. However, when you understand the potential problems that could lead to business failure, you can plan to avoid the pitfalls that bring down other franchisees. Here are a few common reasons for franchise business failure you should know about.

  1. Overextending financially. As with any business startup, it’s easy to overspend when you decide to open a franchise. And there are several ways in which you might overextend yourself financially. For one thing, you may pay more for the franchise and other initial costs than you anticipated, leaving you with a lack of capital that means you have to start earning right away in order to keep your doors open, which is risky to say the least. You may also overpay for your lease, you might agree to higher-than-average franchise fees, or you could under-anticipate the costs of daily operations. In all cases, you’ll soon find yourself falling short of the money you need to keep your doors open.
  2. Lack of basic business skills. Just because a lot of the heavy lifting of the startup process has been done for you when you buy a franchise doesn’t mean you can run a business without the appropriate background under your belt. This could mean acquiring a business degree or spending some time working in management in your industry of choice (or both), but without the right skills, knowledge, and/or experience under your belt, you might as well be going in blind. And that’s certainly not a recipe for success.
  3. Limited commitment. You might think that business ownership will be a piece of cake once you get reliable management on board. But as the business owner you have more to lose than anyone, which means you should be putting in the most time and effort. Plus, you’re the one who has to pick up the pieces if a manager quits or any problems arise. So you need to be aware of daily operations, able to perform all duties, and prepared to do whatever it takes to keep your business running.
  4. Emotion-based decisions. Your business decisions should always be professional and in the best interest of your operation. It’s tempting to base your choices on emotional input, but this is likely to land you in hot water. Instead, conduct appropriate research so that you can make informed decisions that will benefit your business.
  5. Poor planning. When you start a small business franchise, the worst thing you can do is wait and see what happens. You need to plan for success and have contingencies in place for setbacks. But it also helps if you start off on the right foot. You should avoid major errors like hiring incompetent employees, choosing the wrong location, bad forecasting, and failure to account for competitors, just for example. You can use resources like SBA.gov and Franchising USA Magazine to gain valuable advice about how to run your business, but ultimately the decisions lie with you, so it’s imperative that you take your time, gather information, and make the choices that will help you to avoid failure at the very least, and achieve major success at best.