How to pick a franchise & avoid the failures!

If you like the idea of being self employed yet entering the marketplace with an already established business then a franchise might be a good opportunity for you. However, there is a lot to learn about franchises before taking a leap into this entrepreneurial world. Your previous business experience, amount of investment, and personal preferences will play a huge role in whether or not you are suited for a franchise. Plus, you will need to find a franchise that interests you to help you get started.

All franchises have the possibility of being lucrative and they all have the possibility of failing. Most of the time the making or breaking of a franchise is the franchise owner and his ability to overcome problems that present themselves, not to mention staying dedicated to the franchise at all times. There are three basic types of franchises, including wholesale distribution, products, and services. The type of franchise you should pick is not the one that has the supposed possibility of making you the most money because this simply wonÕt work. The most lucrative franchise for anyone is the one they find enjoyable and donÕt mind dedicating all their free time to making a success.

Before choosing the type of franchise you want to open you will need to consider your business experience, the investment you can make, and what you would enjoy doing.

First and foremost, franchising demands that you “follow the system”. Whether the business is a major food brand or a low-cost home based franchise, you must be a team player whoÕs willing to follow the rules in a rather “independent” fashion. So, if changing the order of things is among your favourite pastimes, think seriously about another form of self-employment because you wonÕt be happy with even the best franchise. (And by the way, if you find a franchise without a proven way of doing business then run like hell. The best franchises simply have the best systems.)

Second, you must have adequate capital if you are starting a franchise business. The reason so many people start out as independents, as opposed to a shiny new franchise, is that they do not have enough cash and/or borrowing power to jump into the deep end of the pool. Therefore, they start on a shoestring and hope for success. And consider this tip: if you cannot afford a franchise in the field you are considering, you may also be under funded as an independent. This is not true in all cases, but itÕs worth thinking about. (And while on the subject of start-up capital, do NOT be fooled by numbers dealing just with total investment for the “business”. Include funds to cover living expenses to a point well beyond the anticipated break-even. You and the kids have to eat while the business is coming of age.)

Third, do you know your business? This might sound like a foolish question to ask, but unless you are a master of your chosen concept, where will you find information, training and support after you open the doors? (Skill and capital are critical elements to business success. So, if you are choosing a non-franchise path, be very that sure you have an adequate supply of both.)

Fourth, do you and your chosen business match one another? Frankly, I consider this the most important of all elements relative to any small business, be it franchised or otherwise. Self-employment is a truly committed relationship, if you donÕt have a deep and abiding love for the business you are entering, donÕt say, “I do.” Even the best franchise opportunity on paper will produce a stressful life if it is not for you. You probably wonÕt last in a business that you donÕt like, and you definitely wonÕt be happy showing up everyday. Find a venture that you love. The three-quarters of the adult population that is unhappy at work, is unhappy because they donÕt have a love affair with their work, but they can stick it out because they get a pay cheque and can go about the rest of their lives. The entrepreneur however, never leaves their business (mentally); they think about it all the time. As a franchising consultant I see many people who have entered businesses without first considering the “lifestyle” demanded by the commitment. Unfortunately they pay a hefty price as they slave away for their purchased master. 

Five Reasons Franchises Fail

Some franchises do fail. The reasons for failure could be a number of factors, most of which could have been prevented by due diligence during the early phase.

1. The idea. Whether you are franchising your own company or buying into a franchise system, how the concept is received by the community is critical. While hamburgers seem to have universal appeal not all food chains meet with majority approval. Also, if your business model is complicated, you are in for a struggle. You want to create an operational standard that can be taught to and replicated by any businessperson. A company may be successful when run by the entrepreneur who dreamed up the concept; however, if the business model or prototype is not easily duplicated, the chances for success are not so certain.

2. Bad location. Ask seasoned franchisees to name one of the most important keys to a successful franchise and undoubtedly they will say, “Location, location, location.” Even with a well-branded name, if you are off the beaten path, inconveniently located, or in an isolated area the opportunity to be as lucrative as possible diminishes.

3. Poor marketing/advertising. Many well-established and reputable franchisors have marketing and advertising funds into which franchisees contribute monetarily. Chains like McDonaldÕs and Subway have national campaigns, while other types of franchises may advertise on a local level. Some franchise concepts require a lot of legwork on behalf of the franchisee. Depending on the business you chose, you may have to solicit your own clients, as in technical and computer support franchises. If you are considering a concept that requires outside sales skills and you lack them, you may want to rethink your choice.

4. Competition. There are approximately 160,000 franchises in operation in the U.S. That means a lot of competition. If your market is already saturated with a concept, you may want to consider something that still is popular but not yet tapped out. Medical spas and restaurants offering healthful choices are gaining ground among the public but there is abundant room on the business owner side.

5. Unrealistic expectations. New franchisees are notorious for having very high expectations for their businesses. It may take 2-3 years before you see a profit and if you donÕt plan for that, you may sink before you have a chance to swim.

A word to the wise: If you donÕt like people, you should not buy a franchise. If you want to make it, you have to put in long hours and work with all kinds of personalities. ItÕs an undeniable fact that some people are more difficult to interact with than others. As a business owner you need to be able to interact well with people from all walks of life. The ability to manage employees also is essential to the success of your business.

Now that you have evaluated your liquidity, total investment, and personal business experience you are that much closer to finding the right franchise idea. Remember, however, that while having the finance and the desire to be self employed is important, there is still one very important element. WhatÕs left you might be wondering? Make sure you do your due diligence and donÕt just buy the first thing you see. So, when considering franchise ideas keep these five key points in mind, and avoid falling into the pitfalls of failure and you will have a greater chance of being successful as a franchisee.