3 Reasons Why Franchisees Fail

For franchisees, knowing exactly what one needs to do in order to succeed is one of the main advantages of acquiring a franchise, with the franchisor providing guidance and assistance throughout the duration of the franchise agreement. However, knowing what could lead to failure is equally important in avoiding potential pitfalls altogether.

Related: Does Franchising Work?


1. Under-capitalization

The inevitable fact that the economy will sometimes experiece bear and bull market conditions means the franchise business will also face both good and bad times. While good times means the business is flourishing, bad time means plunging sales. Going in with a shoestring budget might result in an inability to deal with the inevitable “down” times to withstand the dynamic nature of the marketplace. Simply put, there won’t be enough money to keep the business going.

2. Unsuitable Location

Not all locations are suited for all types of businesses. Some locations may prove to be a winner for certain types of products or services, while resulting in disaster for others. For a bricks-and-mortar business, performing site selection analysis to understand the feasibility of the location is an essential process. And its not just about looking at the level of human traffic, rather more so about how much of the business’ target market could potentially be in that particular area to make purchases to supplement the rental costs that come along.

3. Being Sold A Franchise

Being in the role of a seller, franchisors or the brokers they engage to deal with franchise sales, may sometimes provide inaccurate or misleading information about the franchise and business. Furthermore, some prospective franchisees don’t do themselves any favour too and actually sell the franchise to themselves, being over-enthused about the opportunity and not performing their own necessary research or due diligence. Or worse, believing that they won’t fail.

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