Different Reasons Why Franchises Fail

When it comes to business, there is will always be some uncertainty and risks involved. However, when you opt for franchising it helps reduce these risks as the environment is supported by the franchisor’s resources and other franchisees that operate under that brand.

As a franchisee, you don’t want to lose money when you invest in this business; however, there may be times when you don’t take steps to mitigate the risks either. If your business falters or fails, you end up targeting the franchisor for the failure and there could be times when this is justified too.

However, there are also many occasions on which a franchisee is the architect of his/her own failure and there can be a number of reasons for this. Here is a list of some reasons why franchise businesses fail. Being aware of what these are can help you be forewarned and you can take steps to avoid some of these pitfalls and run a successful franchise:

Franchisor causes

#1 Poorly-planned business model

It’s natural for a franchisee to blame the franchisor’s business model for their failure. It’s not uncommon for underdeveloped business models to be present in start-up business and this is something you should factor into your risk assessment evaluation before you decide to dive into the business. While a poorly-designed business model can be the biggest risk in the case of a new franchisor; mature businesses that have failed to evolve and keep pace with nimble competitors can also be the cause of this failure.

#2 Lack of proper training and support

Poor training and inadequate support can be the other cause of a franchise failure and this is more common with new franchisors rather than well-established ones. You should make the effort to understand what kind of training and support the brand provides; these steps should be taken well before you decide to join the business. If you feel the company is lacking in either of these areas, its best to look for a better franchise opportunity with another brand.

Franchisee causes

#1 Incorrect fit

There are times when you are impressed with a business when you look at it from a customer’s viewpoint and that may encourage you to try your hand at it. Unfortunately, there is a sea of a difference between liking the services/products of a particular brand and being able to manage the responsibilities and challenges associated with running a franchise that sells those same services or products.

Regardless of how passionate you are about a particular brand, product or industry, there could be times when you are the wrong fit when it comes to running a franchise in that space. You need to have the skill, dynamism and the acumen to run that business and make a success of it.

#2 Inadequate planning

No matter how good, well-loved and well-established a particular brand is, if you don’t plan your business strategy well, you are more likely to fail. It’s important that you create a business plan that will show the path to achieving profits via certain milestones. This planning process should be done in tandem with the franchisor and they should consistently monitor and analyse the business plan submitted by you. This will help you navigate hurdles and challenges along the way.

You would also have to ensure that you have sufficient working capital and enough funds to reinvest if required. Maintain realistic expectations and run your business in a focused manner. You should make every effort to evolve and be dynamic enough to be open to new ideas even as you toe the line when it comes to following the set system.

If you want to know more about setting up franchise business or want some advice, feel free to get in touch with us at The Franchise Institute. You can call us on 1300 855 435 or fill in this contact us form and we’ll reply as soon as we can.

Thanks for reading,
The Franchise Institute Team
1300 855 435

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