The 10 biggest mistakes that ruin franchising businesses

It’s a well-established fact that about 90% of all business endeavours fail in the first five years. Furthermore, research has shown that about 21.5% of them go under in the first year, 30% in the second, almost half drop out by the fifth year, and 70% fail by the 10th year. This statistical fact would discourage many people from looking for an opportunity to invest in something of their own, especially when they have a cushy high-management job with somewhat financial stability. 

In contrast, there are franchising opportunities. With a success rate between 85 and 95%, depending on the location, industry, and research, they present a secure way to invest in a business with minimal risk of losing your savings and investment. However, even though the success rate is closing in the 100%, 5-15% still go under.

Today we will talk about these investors who manage to fail despite all odds and despite all the benefits franchising provides. We will shine some light on the 10 most common mistakes franchisees make that risk their business security. 

Invest in a franchise without researching the industry

Investing in anything without thorough research beforehand is downright gambling. Scratch that. Even in gambling, you need to do some basic research on how the game is played and the main strategies. Investing your money into a business without checking the first thing about the industry is simply stupid. Investing in a franchising business is no different. 

There are some key points of interest you should investigate before you put your time, effort, and money into a franchising business. 

First of all, you need to learn all there is about the franchisor. Are they well-known in the public, media, and by others in the industry? What is their annual turnover? Do they grow? How do they treat their customers? What is their approval rate and is their business model successful? A promising sign is if the franchisor has awards and is featured often in the media. Yes, this is a marketing scheme, but it shows they are not afraid to be in the public eye. If you can’t find any publications about a Franchisor – run and don’t look back. 

You should also check if the area you are willing to invest in has a demand for the business you want to start. For example, if you want to open a fast-food restaurant, but the area of interest is full of people, who are cautious about what they eat, be sure you will fail, even if the fast-food restaurant has an outstanding franchising program.

To recap, you must do your thorough research before choosing which franchise to partner with and putting your money in line. Typically good Franchisors, like Fantastic Services (wink, wink), never put areas where there is low or non-existent demand on the market in the first place. Also, they encourage you to check it for yourself by giving you specific tasks during the negotiation phase. This is how you know a franchisor is serious about your money. 

Putting all their money inside the franchising investment

Although the chances of success are very high, you need to know that your success depends entirely on your hard work and dedication. Therefore, if you are not ready to commit, you shouldn’t go through with buying a franchise. On the other hand, if you are prepared to commit, you still shouldn’t invest all your savings. Not because you will fail, but because it takes some time before you can earn some money. Any business needs time to become self-sustainable and even more to become profitable. The big difference is the far less time you need for a franchise business to start earning. Our franchisees, for example, manage to become self-sustainable in 4 to 8 months and return their initial investment in 16-24 months. This is actually lightning fast compared to a regular solo business, which has an average time of becoming a self-sufficient business of 3-5 years, and returning the initial investment may take a decade or longer. 

However, despite the obvious advantage of the franchising business, you still need to have some money to operate your business and sustain yourself during the period when you won’t rip the fruits of your labour. 

Pretending they understand the Franchise agreement when they don’t

This is the first step toward failure. There is nothing embarrassing about not completely understanding all of the franchising documentation. Nodding your head in agreement when you don’t understand a part of your legal documents is definitely not beneficial – not for you and not for the franchisor. The franchisor has just as much interest in making everything clear as you do since they generally try to avoid being considered frauds, even if it’s someone else’s fault. So if you don’t understand something in your agreement, don’t hesitate to ask.

 We would suggest you take a step further and seek the help of an attorney specialising in franchising. 

Finally, sign the documents only when you are convinced you to know and understand every aspect of the agreement. This will ensure there won’t be any surprises afterward, and your partnership will go smoothly. 

Taking a bite, they can’t chew

One mistake that many new franchisees make is to start big even when they have no real experience and not enough resources to sustain such an endeavour. So even if you want to secure an area with high demand, make sure you have the funds and resources to hire enough teams to cover it all. 

It’s best to start small and gradually grow your business rather than jump straight into the deep.  

On the other hand, if you are sure you can handle all of the demand and only your insufficient funds are stopping you, maybe it’s a good idea to seek a loan. In this case, you should consult with your franchisor since they would most likely know the best course of action. Remember that you are partners, and your success is their success as well. 

Going through an analysis paralysis

While it’s a great idea to do your research, consider all the possibilities, and be careful when getting into the franchising business world, many newcomers fall into “analysis paralysis”. This phenomenon is often due to insecurities and a lack of trust, which you should avoid. 

If you are going to start a franchising business, you need to trust your partners. While you are investing your money, they are investing just as much time, effort, and resources to make sure you will be successful. Their incentive to make you successful is far greater than just scamming you out of your money. Typically, the initial fee franchisors charge is only to cover their expenses and rarely have any revenue based on this first transaction. 

So rather than wondering why, who, where, and other “W” questions, better lay your trust in the chosen franchisor and let them help you become the success you deserve to be. 

Getting too creative

One of the biggest myths about franchising is that there is no entrepreneurial creativity when you follow someone else’s business model. That’s anything but true. You have the freedom to make your own decisions, as long as they are in line with the general guideline of the brand. If that sounds like a burden and you want to have all the creative freedom, remember that the franchisor has already gone through all of your ideas. The franchisor hadn’t become as big as they are by luck. They have tried and failed more times than you can imagine until they found a business model that is both secure and successful. So, while you can have creative freedom to some extent in the marketing, sales and recruitment processes, you shouldn’t go overboard with your creativity. Also, you should definitely check what the franchisor has to say about your plans. They might have already tried it, so it’d be pointless to invest resources and time into something that’s been proven to not work. 

Thinking the franchisor will do all the work

Owning a business is not for the lazy ones. Many newcomers into the franchising business think that their franchisor will do all the work, and they will only get the benefits. Nothing in life works that way, and you should know this by now. Owning a franchise business is a full-time commitment, where your success or failure is entirely up to your hard work and dedication. A good franchisor will let you know this simple truth before starting your conversation. When push comes to shove, you can’t expect someone else to write your success story. However, a good franchisor will provide you with the pen and paper to write it yourself. 

Disregarding their business plan

Franchisors go to great lengths to provide you with a comprehensible and easy-to-follow business plan, which worked for hundreds, if not thousands, of others before you. This business model has provided the franchisor with the ability to grow enough to offer their know-how and experience to others. Therefore, it’s irresponsible and rude to simply think you know better and disregard the business plan altogether. 

When you come to think of it, that’s the main reason you are paying a fee. Yes, franchisors provide you with all kinds of support. Still, the main reason people go after a franchising business is because of the established, proven, and well-documented business plan that only needs to be followed to succeed.  

Finally, if you are convinced to have a better business model, just don’t buy a franchise but instead go for a solo business endeavour. No one says your plan is worse than the one the franchisors provide, except statistics, of course. 

Relying only on the Franchisors marketing

Franchisors typically offer you a great deal of support from marketing, sales, customer support, and technological solutions to financial advice, ongoing training, personal coaching, recruitment, and others. That’s one of the biggest benefits of starting a franchising business rather than a solo endeavour. However, relying only on the franchisor’s support is a secure way to become stagnant. For your business to truly grow rapidly, you should put some extra effort into these aspects of your business as well. After all, as a partner and a representative of the brand, you are responsible for making sure everyone in your community knows about it. This will not only help you grow faster but will give your franchisor the incentive to offer you special deals on new areas that need developing. 

Disregard special offers from the franchisor

Speaking of special offers, franchisors often make such to their partners. This is because they prefer to entrust an area where they have a high demand to a well-known and highly-reliable partner rather than look for someone new they know nothing about. 

Most often, franchisors send via email first-come-first-serve types of offers to all of their franchisees, and the ones who react the fastest are the ones who get the bonus. This information is invaluable, whether it is a special deal or just insights into existing stats in a new area. You can go even a step further and ask your franchisor if you are looking to expand. They will gladly give you the heads up whenever something good comes along. Remember that you are partners, and whenever you win, they win. 

Avoid these 10 mistakes to become successful

It’s an understatement that avoiding these mistakes is the easiest part of running your business. Just trust your franchisor and be sure that they have your best interest in mind since they depend on your success to grow and remain on top in their industry. So the easiest way to ensure your success is to simply follow the best practices, trust your partner and be mindful of your own capabilities. 

• Last update: May 23, 2022

Posted in Industry Insights