10 factors that can make or break a franchisee

break a franchisee

They say nothing is as reliable as an inner voice when you start with a business plan. But no one can afford to ignore facts! No wonder it’s always a combination of gut feeling and thorough research that delivers a successful business idea. 

When it comes to owning a franchise, it is no different. You are ready to make a move toward becoming an entrepreneur without taking the risk of starting from scratch.

In the franchise model, every aspect of the business is already tried and tested, right from product research and development to branding and pricing.

Running a successful franchise can be as complicated as starting your own business and waiting for the customers to lap it up. Having said that, one needs to be fail-safe before zeroing on any brand. 

Intuitions are never to be ignored. And when you combine your instinct with an in-depth analysis of facts, figures, market conditions and prospects, the chances of turning the wheel of fortunes in your favor spirals. 

But what are the key factors that can ensure handsome returns once you invest your life savings or borrow the working capital or rely on both in the beginning for investment?

How to check the franchising opportunities that you see are for real? How to choose the right franchise among a sea of brands? Is there a formula available to taste success in franchising?

Without an iota of doubt we can say that yes, a success formula is there based on knowledge and research.

Look for the signs that differentiate a profitable franchise from a non-profitable one. The signs that can tell whether a franchise will succeed or fail may not be loud and clear. But if we dig a bit deeper, they will be visible.

The following 10 factors can come in handy in predicting the path — success or failure — a franchise may follow:

Market potential: A large part of the success of any franchise depends on the prospect of the product and its market.

The franchisor will present you with a market report, but conducting your own research is equally important, that too a  thorough one.

Consider all the factors affecting current and future trends. Most importantly, gauge correctly the future of the franchise in your area.

Pizza is selling fast. But what if your market area already offers tonnes of options leading to cut-throat competition and lower market share.

Franchisor’s growth: What is the current market position of the franchisor? How many franchises already exist? How old is the company?

What is the brand culture? What are the prospects even if it’s a new company? Answers to all these vital questions will go a great deal in concluding.

Franchisor’s model: Buying a franchise means you are buying an already established business model of the franchisor from branding, sourcing to advertising.

Make sure that this model is workable at every level and franchisor support is forthcoming.

Check for the system loopholes, if any. Last but not the least, make sure you get an induction course for running the model properly or you will be left to fend for yourself. Missing out on any of these points can invite a failure.

Insolvency: Getting an exact idea of cash flow and working capital of the franchisor can be difficult, but always keep a close tab on the overall financial health of the brand.

If franchisors go bankrupt for some unprofessional reasons, it can be fiendishly difficult for the franchisee to manage the entire operation, right from supply chain to marketing software and logistics, on its own. The franchise may even come to an abrupt end.

Working capital and investment: Insufficient working capital and lack of reinvestment can derail any business.

Franchising is no exception. A clear idea of the amount of cash expected to flow, both in and out, is a must for a smooth functioning of the business.

Despite profits, the absence of cash flow can create major hurdles and can even trigger the collapse of the business. Inability to keep investing frequently can also put a question mark on survival.

Skilled management: Since the franchising model gives little or no room for independent decision-making to franchisees, skilled and experienced management holds the key to determine the future of any franchise.

No matter how good are the managers hired by you, the future of a franchise depends largely on the management skills and vision of the franchisor.

A thorough review of the franchise management is highly advisable before going ahead with the deal.

High expectations: The USP of the franchising model is adopting a system that is tried, tested and successful.

This proposition, more often than not, creates high expectations among franchisees. Franchising may have its own model but at the end of the day, it’s business. So, profit takes its own time to show up.

It’s common for franchisees to borrow left, right and center to expand the business as they anticipate profits too soon and too much. Unrealistic expectations and lack of financial cushion for a couple of years can create major hurdles.

Franchise agreement: A bilateral agreement must protect either side equally. The terms and conditions laid out in the license agreement can sometimes be too technical to understand for the franchisee.

The franchising model comes with a set pattern of functioning, so in most cases, the terms and conditions favor the franchisor more.

A franchisee should rope in a consultant and legal help to ensure that the agreement does not become lopsided and you are fully aware of the franchise disclosure document. 

Expert guidance: High prevalence of franchising reflects the kind of success this model enjoys.

But to say that franchises don’t fail would be a factually wrong statement. Failure is never as apparent as success.

A franchisee may make the best efforts to sieve the top franchises but the result would never be as fine as one produced by an expert consultant.

Whether it is franchising or any other business, consultants understand their respective sectors inside out. A client or a franchisee must make the best of this expertise.

Customer service: A franchisee may not have much freedom to experiment with the business model, but keeping its customers and clients satisfied is entirely in its hand.

In this cut-throat competitive world, customer satisfaction is not easy to come by. It requires additional investments both in terms of fund and time.

But it’s not a cause of worry. As mentioned, it’s an “investment”, not additional expenses.

Quality has a price tag. But the extra time and money spent to ensure good customer service is what will make you stand out amid a clutter of franchisee. 

Like any other business, franchising also comes with a risk of failure if not handled carefully.

While keeping your vision clear, seek professional help to make your franchise a fail-safe venture.

Dhinal Baxi

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Dhinal Baxi is a founder of franchise Insider. As a founder, he has served hundreds of clients. His experience from the financial sector has helped them to achieve great success in the franchise world.