Even though there are plenty of franchises in the United States that are succeeding, that doesn’t mean there isn’t a lot that is failing. The businesses that fail usually don’t make it due to a variety of factors from poor people skills, lack of funds, and sticking with a system, to poor management and not having the right match between franchisee and the business.
One of the most important decisions is selecting a product that you care about. A consultant may be able to help you with this by offering their opinion as to whether you are a good fit for the franchise. It’s vital to stay disciplined and avoid growing too fast at the expense of what could be exceptional expansion.
Embrace a Successful System
When beginning a franchise, it’s vital to apply all that you’ve learned and don’t take shortcuts. Taking a risky alternative way to try and get rich fast likely won’t work, and it’s up to you to develop a plan that will keep your franchise around for years to come. FranDevelop has more thoughts on this:
Part of the reason you choose a particular franchise is because it has a successful system. In order to be successful, you have to learn that system. Don’t just ‘get by’ during your initial training; absorb everything they can teach you. Continue to read the manuals and work with other franchisees up to and after your opening day. Don’t listen when franchisees try to tell you they have a better way than the franchisor’s—you are purchasing a tried-and-true system, and you owe it to yourself to follow every element of that system until you understand it completely.
If you implement changes on your own, particularly in the early days, you could put your franchise at risk or run into unforeseen consequences that the franchisor already has anticipated. Don’t try to be a rebel – only make changes after speaking about your concerns at length with your field representative. By taking this approach, you can avoid making a rash error (and possibly save your franchise).
Hire a Specialist
Similarly to embracing a system that works, you may also want to consider hiring a specialist, which is what Inc. recommends:
If this is your first time getting involved with business financing–and specifically franchise funding–it would behoove you to speak with someone who knows what they’re doing. Thankfully, there are franchise funding specialists who dedicate their entire careers to this space.
Franchise funding specialists have connections with a variety of lenders, understand the ins and outs of franchising, and can explain possible strategies that would work in your situation. Best of all, these companies typically don’t charge you anything upfront for their services.
Before you bite the bullet, it might be a good idea to speak to an in-house financing expert, especially if you’re going to be a franchisee. Inc. mentions that franchises typically don’t finance the entire startup, and offers details below about how it works:
In many cases, the franchisor will actually offer financing to the franchisee. This is why most entrepreneurs start the process by speaking with an in-house financing expert.
Franchises typically won’t finance the entire startup because they see your capital investment as a sign that you’re serious about the business. However, it’s fairly common to see financing in the form of 15-75 percent of the debt burden. And while some will finance everything together, other franchisors take a segmented approach.
“Instead of financing the entire start-up cost, franchisors may offer financing for portions of the entire cost,” Entrepreneur.com points out. “They may have financing plans for equipment, the franchise fee, operational costs or any combination thereof.”
Research the Business Before Signing On
The Wall Street Journal mentions a few things franchise businesses should pay attention to before signing on as a new business. New business owners need to know that it may take some time to earn money, so they need to be prepared to cover all of their basis before committing to a new business venture.
Among the most common mistakes new franchisees make is signing on before adequately researching the business. Study what it will take to run the business successfully. And be realistic. Owning a franchise is rarely a get-rich-quick scheme.
Contact current and former franchisees to get their feedback, using names from the franchise circular from the franchisers. Never make a commitment based solely on information provided on the Internet or over the phone.
Sometimes, franchisers are to blame. Franchisers may be inexperienced themselves, a situation often found in very small systems. Or they may expand too aggressively, rendering them unable to service franchisees. Brokers or consultants selling concepts may be more interested in a sales commission than in making a good match between business and franchisee.
Ask Yourself Vital Questions
Similar to researching a business franchise before signing on, it’s also essential to ask yourself a variety of questions about the business you’re about to commit to launching. By asking yourself important questions, Small Business Trends says this will help you be realistic and hopefully pave the way to success instead of failure.
A search for a franchise actually starts with you. Before you even think about vetting different companies and inquiring about opportunities, you need to conduct a self-assessment.
Are you looking for an office-based, home-based, or retail-based business? Do you want consistent 9-to-5 hours, or are you flexible? How much time can you commit to the business? How much capital do you have available for an investment? How much can you borrow?
The answers to questions like these will help you understand what sort of franchising opportunities you can realistically consider. For example, if you find that you have $150,000 in capital, can work 30 to 35 hours per week, and want a home-based business, you probably aren’t going to be the next Planet Fitness franchisee. All you’d be doing is setting yourself up for failure. On the other hand, there may be a franchise model out there that meets your criteria and would allow you to thrive.
As soon as your business takes off and you’re generating an income, it’s time to become a multi-unit franchise owner. Adding more than one unit and continue to add money. Plus, as Entrepreneur mentions, banks are a lot more interested in lending money to franchisees who are successful with an excellent track record.
Your business portfolio can grow by first becoming a multi-unit franchise owner. Once you get the hang of your franchise, adding one or more units can make a lot of sense. Consider the following facts:
If you make money with one unit, you should be able to make more by adding units.
Banks are far more interested in lending money to operators who have a proven track record.
Your franchisor built a system of duplication in order to franchise across the country. You can use this same infrastructure on a smaller level to grow your network of franchised units.
Your franchisor may offer you incentives to add units since you’re already successful within their franchise organization and will grow faster with less strain on their training and support staff.
The franchising business structure offers several options within this expansion model:
Multi-unit. The multi-unit franchise buyer is usually an individual or business entity that contracts to purchase multiple franchise locations at the same time.
Area developer. An area developer is an individual or business entity that signs an agreement to open a predetermined number of franchised units over a mutually agreed-upon timeline. The same entity owns all the units but is given a period of time in which to open all the units.
Regional developer. A regional developer (RD), sometimes mistakenly referred to as a master franchise, is a hybrid between an area developer and a master franchise. The RD will usually sign a regional developer agreement as well as the corresponding franchise agreement(s).
Master franchise. The term master franchise is often confused with the aforementioned area developer or regional developer models. A true master franchise is usually an individual or business entity that wants to own and operate a franchised organization in a different market than that of the franchisor.
Don’t be Afraid to Hire a Sales Team
If you can afford it, and if it is appropriate, FranDevelop recommends hiring a sales team or just a single freelancer who can help market your business. Word of mouth is a useful technique, but also using social media to your advantage and implementing other methods will help your business get off the ground and hopefully succeed.
Simply put, some people just hate to sell. They just aren’t comfortable picking up the phone or working a room. However, sales are an inevitable part of almost any franchised business. If you don’t feel comfortable handling this task, you need to find someone who will.
Ask for help from your franchisor and fellow franchisees who have effective salespeople on staff. Instead of hiring someone just like yourself because you like them so much, recognize that as a business owner, you’re going to need to leave your comfort zone and hire someone with a different personality and skill set. A highly successful friend of mine puts it this way: “Hire people smarter than you—that’s the key to forming a great team.”