One of the biggest reasons a new franchise owner fails
In my 10 year career as a Business Consultant, I have seen many franchisees and franchisors succeed and many fail. No business is guaranteed to succeed but the resources and support from the franchisor and the community of franchisees operating under its brand. Using both of these can certainly help reduce the risks and barriers to small businesses.
No franchisee is deliberately investing to lose business money, but when investing money it is necessary to find a solution by considering the potential risks in the business. If the franchise business fails, the franchisor blames the franchise owner for the failure. This is obvious and on occasion it is justified, because often the franchisees are the architects of their own failures. This is because they do not take the right measures at the right time to save the business themselves or they do not handle the risks or difficulties in the business at that time or they do not understand the reasons why their business is declining.
This article gives you a brief overview on the failure of a franchisee or a franchisor.
Reasons for the franchisor
1) Bad Business Model: Bad business model can be the first reason behind failure in franchise business. But this is not always true. In general, the business model of new startup entrepreneurs is often underdeveloped. It would be wrong to say that a bad business model is a bad business every time. The simplest word for that is an undeveloped business model. When working on any franchise business model, it should be done with in-depth study and expert guidance. Underdeveloped business models do not identify potential market risks. The result is failure.
The underdeveloped business model is the biggest risk for new franchise entrepreneurs. For the same reason, it is not possible to survive in the competition and develop a business in the real market.
2) Inadequate training and support: Another reason for the failure of a franchisor to enter the market with a new model compared to the established franchise brand is the lack of adequate training and support to the franchisee. Both of these are usually important factors in the operational aspects of a new brand. Therefore, it is imperative for the franchisor to provide a complete training and support system to their franchisee at any time. The nature of the business understands the flaws in the training program and support system by developing resources, statistics, frequency, and by analyzing the training and support system provided by the franchisor. If this is not satisfactory, then it is imperative to develop a complete new training program and support system.
3) Bankruptcy: When a franchisor fails or gets into financial crisis, even their franchisees do not survive in the market. This is because marketing, supply chain logistics, IT and other basic processes that put the franchise network together can be completely shut down.
Reasons for the franchise
1) Improper franchise: Businesses who want to take a franchise look at the brand from the customer’s point of view first and just because they like the product, it is suitable for running the business, so they take the franchise of that brand. Unfortunately, there is a difference between liking a product and running a business. Sometimes many franchisees fail even when they are passionate about products, brands or industry. They may be unable to develop businesses over time, be unable to manage staff, or analyze the failures of franchise businesses by considering a number of other factors.
2) Incomplete planning: “A failure to plan is a plan to fail.”
A planned failure is a plan to fail. Many franchisees fail to develop a business plan or even try to come up with a single business plan, even if they have this wisdom in themselves or know the meaning of this saying.
3) Business Plan: This is a roadmap to make a profit through specific stages. The franchisor should be involved in the planning process and the franchisee should continuously analyze and monitor the business plan submitted by the franchisee so that they can run their business according to the planned business plan.
4) Insufficient working capital and reinvestment: Insufficient working capital and lack of reinvestment are the main reasons for the failure of all businesses. (Not just franchising) Franchisees who start a business with insufficient working capital are unable to pay the bills / bills if the amount spent or out of business is more than the amount received in the business.
Although the franchise business is profitable, if customers do not pay on time, they may run out of money to pay their bills when they are tired for a long time. Failure to understand the difference between cash flow and reinvestment can cause your franchise business to close.
5) Unrealistic expectations: Do franchisees have unrealistic expectations from their business? Check out the business plan to find out. So his financial expectations i.e. profit making expectations are known. In addition there may be other unrealistic expectations based on training, marketing, flexibility of the business model. These unrealistic expectations cause great losses to the business or occasionally shut down the business; This is because there is no timely discussion between the franchisor and the franchisee.
6) Distraction: Sometimes the reason for the failure of a franchise business is not related to the franchise business but sometimes it is different. If the franchisee’s business is running smoothly and comfortably, he is eager to seize other opportunities. Then for that they are looking for other business opportunities or new hobbies to keep busy. But this has cost them both time and money by neglecting their franchise business. They also shift their focus from their franchise business to another new business. When that happens, they use the money invested in their franchise business and some of the staff to build another business. When the left hand robs the right hand, both hands are damaged.
7) Failure to develop: Market conditions change frequently. If franchisees do not change or update business policies to adapt to market conditions, they will ultimately fail. Fortunately, they are not alone in this, in which case the franchisor has to update their business model according to the time and situation. However, if the franchisee does not adapt (or ignore) their business to the market conditions, the loss will certainly be.
8) Failure to follow the system: Even by investing in a franchise business with a prescribed procedure, some franchisees feel that we can do a better job than this. In such cases, instead of imitating the franchise system, they work against the system and try to run the business as they see fit. So this could be a loss to the franchisee. Doing so could lead to the franchisee ignoring the franchisee and terminating your franchise agreement. Therefore, non-compliance of the franchisee with the system is tantamount to running the business on its own.
There are a number of reasons why franchises fail. This is the fault of both the franchisee and the franchisor.
As franchise consultants in Mumbai, we at Franchise Birbal always provide individual attention to our clients and help them to establish franchise businesses both in India and internationally. Franchise Birbal helps franchisees start, grow, and protect their franchises. By developing a franchise business with us you get the assurance that you will be able to establish your franchise business successfully. Our franchise consulting and legal documentation services start from Rs. 15000/-* onwards.
Contact Us
Call/WhatsApp: +91 91372 56150
450, Mastermind One – IT Park, Royal Palms, Aarey Colony, Goregaon (E), Mumbai, Maharashtra 400065.
