Table of Contents
Franchises, like any business venture, can fail for various reasons. These reasons include poor location selection, insufficient capital infusion and inadequate training. Entire networks can also fail for reasons such as poor management and marketing. This article will further discuss some common factors contributing to franchise failure and how you can avoid these mistakes in your network.
Factors Contributing to Unit-Specific Failure
1. Poor Location Selection
Choosing an inappropriate location for a new franchise unit can have a detrimental effect on its success. To mitigate this risk, thoroughly analyse an area before deciding on a suitable site. Consider factors such as:
- competition;
- demographics; and
- foot traffic.
Competition is essential to consider because it can impact a unit’s overall performance. If competitors saturate the local market, it can be challenging for a franchisee to attract and retain customers.
2. Insufficient Capital
Insufficient capital can be a significant factor in franchise failures. Inadequate funding can lead to an inability to cover initial set-up costs, ongoing expenses and any unexpected challenges. Ensure you calculate a suitable initial fee. The fee may vary depending on the location and size of a franchise unit.
3. Inadequate Franchisee Training and Support
Franchisees can struggle if they do not receive proper training and ongoing support from franchisors. Lack of guidance on business operations, marketing strategies and brand-specific procedures can lead to franchisee dissatisfaction and unit failure.
Develop an effective training program for new franchisees, including training on your brand and the systems franchisees will use. Also, provide franchisees with a complete franchise operations manual. The manual should detail everything a franchisee needs to know about your brand and how they should operate their unit.
4. Franchisor-Franchisee Conflict
Disputes can occur in any form of business relationship. Franchise relationships can be especially vulnerable to this due to their length and collaborative nature. Disagreements between franchisors and franchisees can impact their units and your overall network.
To mitigate the risk of disputes:
- clearly outline franchisee and franchisor roles and responsibilities in the franchise agreement;
- communicate respectfully with franchisees; and
- provide a clear dispute resolution framework in your franchise agreements.
Franchise Network-Wide Considerations
1. Management
As a franchisor, you are responsible for maintaining your network’s competitive position and being an effective leader. Lack of experience, skills and commitment can hinder the overall success of franchise businesses.
It is important to note that there is a careful balance to strike when making network-wide changes. Franchisees are independent business owners. Work collaboratively with them and consider their views. Stick to the duties and responsibilities outlined in the franchise agreement and ensure you communicate significant developments to your franchisees.
2. Ineffective Marketing Strategies
Business owners must use effective marketing to generate brand awareness and attract new customers. Poor franchisor marketing efforts can lead to poor sales. Ensure that you set a sufficient budget and use the marketing fund appropriately. Also, develop customised unit-specific marketing strategies. Help franchisees conduct appropriate marketing in their respective areas.
3. Customer Trends
Changes in the market can result in decreasing relevance and customer appeal. Continually conduct market research. Scope the competitive landscape, monitor trends, and thoughtfully evolve your brand to match changing preferences.
4. Legal Issues
Legal issues can be expensive and time-consuming. They can also impact your brand’s overall image and success. Franchise businesses may face legal challenges. Such matters may include issues like contractual disputes or misuse of intellectual property.
It is a great idea to seek legal advice from the beginning of your franchising journey. A lawyer can draft robust contracts on your behalf, including franchise agreements and advise you on mitigating risks. They can also help you register your intellectual property rights, including trade marks and patents, protecting your brand’s identity.
Discover the key legal and commercial issues to consider when buying a franchise.
Call 0808 196 8584 for urgent assistance.
Otherwise, complete this form and we will contact you within one business day.
Key Takeaways
The relationships you share with franchisees and the decisions you make on a micro level contribute to the health of your franchised brand.
To mitigate the risk of a franchise unit failing:
- select each new location carefully;
- ensure there is sufficient capital to support set-up and ongoing costs;
- train your franchisees properly and provide them with ongoing support;
- communicate with franchisees clearly and respectfully; and
- provide a clear dispute resolution framework.
Following the above steps with each franchise unit will help you to maintain your overall network. To further mitigate the risk of your network failing:
- adopt an effective management style;
- advertise your brand and help franchisees customise their marketing strategies;
- pay attention to customer trends; and
- seek legal advice and mitigate legal risk.
If you require legal assistance with your franchise, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
We appreciate your feedback – your submission has been successfully received.
