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The top five things that cause franchisees to fail (and how you can avoid them) By Jason Gehrke
ABOVE: The business plan is yours – own it
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fter more than 25 years in the franchise sector, I have seen many franchisees achieve spectacular things that would never have been possible in their previous jobs. However at the same time, I have also seen more than a few franchisees crash and burn. Typically, when a business fails, the owner will externalise responsibility for this and blame someone else. For an independent small business, the targets of blame are typically banks, landlords, big competitors, government regulation, the economy, or one or more of these in varying measure. For a franchisee, these same targets of blame exist, as well as the largest and most convenient target: the franchisor. While it might be easy for a failing franchisee to blame their lack of success on a variety of perceived or imagined shortcomings by the franchisor, sometimes franchisees are the authors of their own misfortune. So, based on 25 years’ experience, here are my top five reasons why franchisees fail, and what they should do to avoid them.
1: Insufficient research
For many people, the decision to become selfemployed is driven by factors other than money. It’s about taking control of their lives, enjoying a better lifestyle, getting out of an unenjoyable job or work environment, or some other issue. Rarely is it a decision based solely on dollars and sense. As a result of these emotive decision factors, potential franchisees often don’t do anywhere near enough research before buying a franchise.
For those who do make an attempt before signing up, it is often by proxy. In other words, they pay their accountant to do a business plan, and a lawyer for advice on the franchise agreement – then ignore both and go ahead anyway. So what you need to do is better research right up front, and neither your accountant nor lawyer can do this on your behalf. (And a word of caution here – deal only with lawyers who are knowledgeable and experienced in franchising. They will save you time, money and anguish in the long run compared to the local lawyer who did your will or the conveyancing when you last bought a house.) You need to talk to as many current and former franchisees as you possibly can (not just one or two, but dozens). The franchisor will have a list of these, and their contact details, in their Disclosure Document. You should also read the Disclosure Document and franchise agreement for yourself (in addition to getting advice from a lawyer). As boring as these documents are to read, they contain the essence of your future as a franchisee, including what you can and can’t do, and what you might be forced to do in future even if you don’t really want to. So my recommendation is very simple: Be prepared to spend up to one hour of research for each $1000 to be invested in the business. Be creative with your research too. Sit outside the proposed location and count the number of cars or pedestrians that pass by. Identify all of the potential June/July 2018 SPLASH! 63