Small Business Failure

Is Your Franchise Company Struggling? Part 1

Written by Jay Shapiro for Gaebler Ventures

Business people who opted to buy franchises may have done so believing they were the safer of many options. But the economic slump had a devastating effect on businesses of all kinds, and this didn't exclude franchises. So how do you know if your franchiser is in ill health?

During what have been quite shaky economic times, a great many companies faced difficult challenges. Franchise companies aren't immune to the impact of a financial downturn.

Is Your Franchise Company Struggling Part 1

What's worrying here is that franchisees dependent upon the franchise company so they really need to be on the ball when it comes to detecting when problems may exist.

A franchise company that is in good health will display very clear and robust vital signs. Conversely, the franchise company that has grown weak will develop certain symptoms of ill health.

The money troubles of the past few years have highlighted how even the most buoyant of companies can quickly find themselves sinking. Even though the chaos on the financial industry has been covered most in the press, other companies of all sizes and in all industries have also been subject to problems caused by the crunch. Some have been obliged to sell, merge or even cease operations. In the worst case scenarios bankruptcy has been the only option.

The important aspect that defines a franchise company as opposed to one which is non-franchise is that the franchisor represents the very lifeblood of all in its franchisee-owning network. So when a franchisor faces a severe problem, it is likely to impact on the franchise holders. If a situation cannot be rectified and therefore deteriorates, it can have devastating effects on the franchisees. Also, because most franchisors are private companies, monetary reporting is not as widely shared compared with the way that the business of publicly owned companies is. As a consequence it can be very hard for the franchise holder to ascertain if or when the franchise company is in financial trouble.

Here's how to judge if your franchise company is in a less than hale and hearty state:

A strong and financial secure franchise company plays a vital role in the following areas:

  • Conquering new franchise locations which in turn spur sales growth and promotion of the brand name.
  • The provision of a clear sense of direction alongside full support for all in the franchisee network.
  • Where disputes exist, the franchisor is able to resolve them and take responsibility.
  • Marketing and operational strategies are spearheaded by the company head office.
  • Research and development is carried out by the company.
  • Admin and operations of the allotted advertising fund.

When the franchisor is no longer able to efficiently operate the company, the effects will pretty quickly be transferred to the directly franchisees.

Jay Shapiro is a freelance writer based in the UK. Jay has a particular interest in the emotive aspects of the entrepreneur's character. "Alongside the nuts and bolts of business, the character of the person is often the ingredient responsible for success."

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