You just acquired a shiny new franchise and dreaming of money rolling in by the truckloads. Things are smooth-sailing and you are already thinking about what you will do with all that free time after early retirement with financial freedom. But have you thought about what happens when things go south?
Nobody ventures into a business thinking they are going to fail but it's not always sunshine with a bed full of roses. Before taking up that perfect franchise concept, be sure you can weather the storm by preparing for some scarily possible scenarios.
3 Worst Scenarios
Horrible Sales Figures
In most new businesses, experiencing a spike in sales during the initial opening phase is not uncommon. This is perhaps due to the fact that customers are interested to try out a new product in that location. Some business owners may take this sales spike as the norm and expect great things to come. But then the dust settles and the novelty wears off. Customers stop coming through your doors and start looking for something newer or decide that your offerings are not right for them. Not that it won't happen, but it's unusual for a business to experience peak periods throughout since opening its doors.
This is why talking to the franchisor and finding out about marketing plans and activities is so important. It's not just about opening marketing activities but also on-going plans to attract and retain customers. The franchisor should have the necessary expertise and experience to provide you with the appropriate advice. If not, keep looking for another franchise opportunity.
Seeing Your Investment Go "Poof"
Setting up a franchise business requires a large amount of investment. For a start, there's the upfront franchise fee payment and initial investment typically upwards of $100k for franchise unit development. Furthermore, other major on-going expenses include rent, utilities, employee salaries and not forgetting royalty payments to the franchisor. So to be a franchisee, you need to be a brave individual to accept these financial commitments. Even so, there's always that lingering fear that you made a bad investment and your franchise business will not survive. To top it off, the reality is business failure is something that could actually happen and isn't that uncommon.
While there is no guaranteed formula for success, you could improve your chances by ensuring your skill sets match those required to operate the franchise concept. Evaluate franchise opportunities from a practical perspective and don't make emotional decisions, just because you like a company's product doesn't mean you can successfully sell it. Also, don't take on a franchise that is out of your financial ability - stay in your lane.
The Franchisor Closes Shop
Don't be mistaken - while a franchisor filing for bankruptcy isn't a common sight, it does happen. Be sure to speak to your franchise lawyer or include in your franchise agreement such clauses that pertain to franchisor bankruptcy. The main issue here is to determine your responsibilities and obligations should such a scenario actually happen.
Perform as much research as you can and look at several other franchise opportunities and their business models for comparison. If possible, talk as much to people related to the franchise to get a better understanding of the concepts you are looking at. In today's Information Age, you don't have a reason to be lazy anymore.
Franchising allows you to set up a business that is associated with an established brand name with proven operational systems. But at the end of the day, it is still your business and the franchisor can only provide support up to a certain point. Owning a business is not for the faint of heart because there are so many blindsides that could cripple your operations. Be forward-thinking - gather as much information, plan ahead and expect the worst possible scenarios.