Turning a small business into a massive franchise is exciting for business owners. At the same time, there’s a lot to learn, especially if it’s their first time as a franchise owner. While it is a great way to start a business, it could be quite an investment, and simple errors could result in heavy losses. So, here are a few common mistakes business owners must avoid when running a franchise.
1. Not researching enough
Before taking up a franchise, business owners must conduct sufficient research. A lack of this could result in them entering a space they know nothing about. Most experienced entrepreneurs learn about an investment’s benefits and caveats before investing money in it. One should start with online research to identify the potential of a franchise. The individual could also visit franchise exhibitions and conventions and talk with existing franchises to better understand the business model. Other elements to consider include the franchise unit’s cost, support, and location.
2. Not having sufficient funds
Unless one has a good amount of wealth, one must secure financing to fund the new franchise. However, more than simply getting the funds is going to be required. One needs to ensure they secure financing to cover all the costs associated with the business chain. A few elements may include the startup costs and the expenses to run the business for at least one year. Those who go with a traditional bank loan will likely need to make a 30 percent down payment. Most entrepreneurs prefer a combination of a Small Business Administration (SBA) loan with a Rollover for Business Startups (ROBS), which opens up a range of other financial benefits. One should also remember that it may take a while before they start seeing a steady profit stream.
3. Wavering from the business plan
While entrepreneurs may start with a certain business plan, they may steer away from it rather quickly toward other aspirations. This could hurt the business model and consequently affect profits. One must ensure they stick to the business plan, especially if they join a franchise program, as this could help the venture become successful.
4. Not utilizing franchiser support
One of the biggest mistakes an aspiring entrepreneur can make is not utilizing franchisor support. Joining a franchisor program instead of going independent could help one get additional support and regular support around the year to launch their business. The franchisor will also have experience and insights into how an entrepreneur can run the franchise, which could prove highly useful in the long haul.
5. Franchising a business too early
Several entrepreneurs experience unimaginable success from their first business venture. This might drive them to franchise the business in a year or less. After all, the idea of running multiple locations instead of one could be attractive. However, franchising the business too soon is a common mistake and results in a loss. Expanding early on could also lead to one running out of business and needing to shut down the venture. An entrepreneur should wait until the business is operational for at least three years before considering franchising.
6. Not following guidelines
If one is working with a franchisor, they must follow guidelines. These rules and regulations are in place to ensure that the entrepreneur delivers quality products and services consistently so that the franchisor’s overall brand and image are protected. If one does not follow the rules, they might make mistakes that could affect the success of the particular unit and ultimately impact the overall brand.
7. Neglecting lawyer support
If an individual has never owned a business before and gets involved in a franchise without a lawyer, they might face various legal problems that are complex to deal with. Joining a franchise program requires a lot of learning. One will need to fill out multiple legal documents initially, so one should ensure one understands each clause thoroughly. With the help of a franchise lawyer, one could patch any loopholes that look problematic, such as those in the franchise disclosure document (FDD), which could ensure a smoother legal process throughout one’s entrepreneurial journey.
8. Not considering the exit terms
One might be excited about expanding their business, but they must also consider the exit terms. While the entrepreneur might not initially think of selling the franchise, not knowing if they can exit the franchise down the line could be a massive error. Selling a franchise is a complex process, and ignoring details upfront could lead to drastic drawbacks in the future. One must carefully read the exit terms and get them cross-checked by their franchise lawyer. The individual should also work with the franchiser on these terms and make changes if necessary.
9. Failing to address staff grievances
While the quality of the product offered by the franchise might be satisfactory, it isn’t always the primary business driver. The staff who work at various franchise outlets also play a crucial role in bringing in profits. For instance, some customers might revisit a store to purchase products or services because of the friendly and knowledgeable staff. Therefore, one should ensure they appreciate the staff, including incentivizing sales, offering bonuses, and other benefits to maintain their satisfaction levels during their tenure at the franchise.