Wondering why franchises fail? You're odds of entrepreneurial success increase when you franchise, but franchises failure rates are higher than you'd think. We discuss the reasons franchises fail and how to avoid franchise failures in your own ventures.
Ideally, franchises offer small business owners a proven system for turning a profit in the marketplace. However, a franchise is not necessarily a guarantee of success.
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Many well-intentioned business owners purchase franchises that quickly fail. Knowing the reasons franchises fail can make a big difference in the ultimate success or failure of your franchise.
Here are some of the most commonly cited reasons behind franchise failures
In the world of franchising, there are two kinds of franchisors. The first are companies that have proven effectiveness in executing a business strategy and then seek to expand their business by offering franchises to other small business owners. The second are companies and individuals who are merely looking to make a quick buck at someone else's expense.
Successful franchises begin with a viable franchise system. Some franchisors peddle business strategies that were never able to achieve profitability in location, let alone in multiple ones. To inoculate yourself from buying into an ineffective franchise system, contact other franchisees who have bought into the same franchise and ask as many questions as you need to ask to determine the viability of the franchise concept.
Even in franchises, location is everything when it comes to small business. A highly-recognizable franchise will still fail if it is hidden away from the view of the buying public. Resist the temptation to go cheap on location as a way to offset the cost of the franchise. Instead, place your franchise in the most prime spot you can afford.
Competition is fierce, even in franchising. Although franchisors typically guarantee their franchisees territorial exclusivity, restrictively small territories can still create an over-saturation of the market. You also have to take into consideration area businesses outside of the franchise that offer similar products and services. If the market is saturated with businesses in your industry, then maybe you need to consider to locating in a different area or buying into a franchise in a different industry altogether.
Getting the word out about your goods and services is a vital element in small business success, regardless of whether or not your business is a franchise. Some franchise owners mistakenly believe that the brand recognition that comes with the franchise eliminates the need for them to promote their business locally. In fact, nothing could be farther from the truth. Although your franchisor may offer you the opportunity to buy into a marketing campaign, you'll still need to take steps to promote yourself in your area.
Lastly, many franchises fail simply because their owners had unrealistic expectations about franchise ownership. Owning a franchise is not a day at the beach! Like any other small business, it requires hard work, dedication, and (quite likely) a couple of years before you will realize a profit.
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Those "quick buck" franchisors and other respectibla frachisors benefit from the ability to "CHURN" franchise owners to their advantage. These franchisors sell NEW franchises out the front door and highly DISCOUNTED businesses of franchisees, who have defaulted or want to cut their losses, out the back door.
Because the government disclosure document doesn't require franchisors to disclose any UNIT performance statistics in their possession to a new buyer, the new buyer is often blinded by the visibility of a franchise and doesn't understand that the visibility has been attained by the compouded churning of franchise units.
LET THE BUYER BEWARE