Entrepreneur magazine states that over 65 percent of franchises survive at least four years. Running a new company is hard because business acumen and life wisdom often come through making mistakes. It is much better to learn from the unsuccessful experiences others than pay the time, personal and financial costs. Below introduces some of the most common franchise mistakes and how to successfully prevent and avoid them.
Market Research
The most common mistake an aspiring franchisee makes is a lack of market research and understanding. They may mistakenly assume that semi-legitimate franchise opportunities that are approved by third-parties are valid, safe and profitable. Successful organizations cannot guarantee money-making capacity and long-term success. Instead, the best franchises will help potential partners understand the industry variables, marketplace trends and competitor values to make the best business decisions. There are hundreds of popular franchise opportunities available, such as staffing, restaurant and personal care, so they each present unique opportunities that vary by location. The most successful franchises will have experience with diverse clients and entering new markets.
Buyer Beware
Most entrepreneurs who contact a franchise headquarters will assume that the company will try to sell them a business. The most reliable franchises will screen candidates and require them to qualify by meeting basic standards. These franchises will promote a mutual process that involves due diligence and open communication. The franchise should provide important business data and research while simultaneously scrutinizing the candidate’s application, resources, financial health and professional competency. This ensures that there will be a strong and successful match between each parties’ objectives, capabilities and backgrounds. Always choose franchises that award, not sell franchises to qualified and dedicated business professionals. Be wary of any franchise that simply requires candidates to fill out and sign complex legal and business forms.
Misunderstanding Lease Terms
Many entrepreneurs have more passion and enthusiasm than legal training, so they may not understand all of the contractual terms. Most franchises operate out of leased spaces in retail environments, so this will be one of the largest startup investment. There are a number of economic factors that are involved in the negotiation of commercial leases. First, verify if there are any escalation clauses in future years for the base rent. Some real estate organization may agree to a few first months of free rent to help the business grow. Carefully evaluate the tax charges, cost assumptions and the common area maintenance (CAM) fees. It is becoming common for landlords to provide leasehold improvement allowances that reward money for the build-out of the business location.
Supply Chain Challenges
Depending on the type of business and industry, a franchise may rely on the continual availability of specific products. For example, retail, clothing, hardware, auto parts and restaurant franchises heavily rely on the consistent availability of specific items. Some supply chain experts use the term “secret sauce” to identify key products that are operationally necessary for brand quality and consistency. It is critical to cultivate positive relationships with suppliers while also maintaining awareness of available alternatives. It may help to understand local tastes and preferences in order to source similar, acceptable substitutes for potential supply shortages. Keep in mind that service-based franchises may also depend on the availability of some B2B special products.
Finally, be sure to carefully project labor, fixture, inventory, marketing, construction and business equipment. Visit our website to learn more about franchising development and management. Don’t forget to sign up for free information and downloads about the staffing industry and the Nextaff staffing franchise.