Reasons why franchises fail

Customer service is phenomenal. The franchise quickly wins over and retains loyal customers. Franchisees have enough capital to build the business. This includes a marketing budget and plan and a substantial safety net for the first two years..

Franchisors and franchisees alike are good leaders with strong management skills. They communicate clearly, responsibly, and run a tight ship.

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Read more about Dave here. Latest posts by Dave Schoenbeck see all. Notice: JavaScript is required for this content. Dave Schoenbeck 0. A leading cause of a franchisee failure is the franchisee being undercapitalized. A lack of sufficient working capital can be the result of a slow start-up or the franchise operation requiring more working capital than the amount disclosed in the franchise disclosure document.

There are situations where a franchise candidate may think that operating the franchise is easier than it really is. I recall a situation when one of my franchisees failed. When we made our franchise discovery day visit it just seemed that operating the franchise was easier than it was. Although this may not be a primary reason for failure, a franchisee that is not properly trained and supported can have problems succeeding. There are a number of reasons why a franchise can fail.

Understanding why franchisees fail is important when choosing a specific franchise opportunity and especially when conducting due diligence.

Obtaining quality feedback from current and former franchisees is still one of the most valuable ways to evaluate a franchise opportunity. About the Author: Ed Teixeira has over 35 years of franchise industry experience as a franchise executive and franchisee.

He has served as a franchise executive in the c-store, manufacturing and home healthcare industries and has licensed franchises in Asia, Europe and South America. He has spoken on the subject of franchising throughout the world.

Ed operates FranchiseKnowHow which provides information and advice to prospective and existing franchisees and franchisors. The answers to these questions will depend on the language of your specific franchise agreement, although some general principles can be identified:.

This just means you follow the best methods in your industry. But in some industries, those methods are not even defined. Many of the franchisees we talked with had to make a decision first on whether they would open an independent business or a franchised one.

A few of their stories follow. The challenges of owning a new business should be made clear to the franchisee prior to acquiring the business. Also, a franchisor should provide franchisees with resources to assist with these demands.

This does not mean that the franchisor needs to get involved directly. Simply having a list of well-experienced external service providers for backoffice functions such as bookkeeping services can be a significant benefit. Franchisors play an integral role in franchisee success. The more tools available, the greater likelihood of franchisee success. Franchisors may be able to provide HR policy manual templates.

Hiring policies have considerable importance in any business, and if not executed correctly, new franchisees could struggle when it comes to hiring and managing employees. Training programs are imperative to the success of any business.

Franchisors should provide training programs for staff on both customer service and technology. Franchisors create the culture for their organization and should therefore be involved in helping franchisees set the right tone with customers through organization wide training programs. In addition, franchisors should make sure to train franchisees on the technology suite used in the business.

Franchisees will have different levels of familiarity with technology. Ensuring that they are trained to maximize the use of technology will increase the likelihood of success. It is extremely important that franchisees understand what they are getting into and that they do not believe that their investment will be hands-off. Both franchisees and franchisors should do their due diligence on one another.