5 Biggest Mistakes New Franchises Make

Thousands of franchise companies offer countless goods and services here in the US and offer tremendous business opportunities for entrepreneurs. The vast majority are successful in growing their brands, delivering quality goods and services to the public, and generating profits for franchisees and for themselves. Yet many, even franchisors with long histories, are not as successful as they could be.
Common Franchisee Follies

Two key investments are required before your franchise launches: marketing and hiring. Successful marketing builds much-needed momentum during the franchise’s infancy, attracts business, and promotes a positive reputation. Meanwhile, the first employees to represent the brand must make it a top priority to give the best first impression to your new customers.

When it comes to your franchise’s success, investing in the right team members who have strong mindsets focused on impeccable customer service can make all the difference. So, recruit wisely and focus on employee retention from the start. Value your employees because nothing is more detrimental to a franchise than a constantly revolving door (not to mention the costs and time involved in recruiting and training new employees).

How to Avoid First-Time Franchisee Mistakes

For the less experienced first-time franchisee, here are five under-the-radar mistakes we commonly see.

1. Improperly capitalized into the business

Franchisors who do not have sufficient funds in their own company are unable to screen franchisees, perform the supervision, and deliver the assistance needed for the system to succeed. Also, lack of funds makes the company appear financially weak. These franchisors are forced to lower their standards and are unable to assert proper contractual authority with franchisees. Lack of capital can be destructive to a franchise system.

2. Failing to hire the right General Manager

Hiring someone that has direct and specific experience in the industry is key. Unfortunately, we see quite often where the franchisee puts a family member or friend in the position of GM that has no experience, and that is a huge mistake.

And secondly, it’s quite beneficial to hire a GM that has skin in the game, even if that means with a vesting period, but they end up owning a percentage of the business after a certain number of years, and some profit sharing as well. It’s extremely valuable to have people feel they have real ownership because if you just hire a GM, and three months later somebody recruits them away for more money, it’s likely because this just feels like a job to them. Invest in them and they will invest in you.

3. Not Leveraging the Support of the Franchisor and their Training

One of the biggest benefits of joining a franchisor program instead of going out on your own is that you get all that extra support for launching your business and even regular support around the year. The franchisor has knowledge and experience you don’t have, so it would be one of the biggest franchising mistakes not to take advantage of it.

People who become franchisees tend to have an independent spirit; this is what drives them to own their own business in the first place. However, it’s important to realize that an undertaking such as opening a new business is best done with some assistance.

Working restaurant owner
4. Expecting Immediate Success

Maybe you really love the food or products of a particular franchise or maybe it is their mission and values that attract you–many people get into the franchise business because they are already a loyal customer. While passion for a brand is important, there are a vast array of other factors to consider such as cost, support, and location. Before making your final decision, make sure you have thoroughly researched at least a few different franchises.

Would-be entrepreneurs are eager to get in on the ground floor of a trendy new business. What they should do is the exact opposite. The benefit of a franchise is really to buy something that’s been proven over a period of time, and ideally, that’s been proven over different economic climates as well.

5. Failing to Choose the Right Real Estate

Poor site selection is often cited as one of the most common pre-opening decisions that can doom a franchise. In a competitive market, modern franchises require locations that allow for organic exposure and easy access. Today’s franchisees need retail visibility, even when that comes with higher rent.

Picking the right site takes time. Visit potential locations in person on different days at different hours. How does the traffic look? Would this spot be accessible and visible or hidden away? If the right location would take more time to secure, talk to the franchise office for assistance or a time extension. That extra time, in the beginning, could make the difference between long-term success and early failure.

Overall, be fastidious in every aspect of the franchise. For many people, buying into a franchise is an ideal way to become their own boss. As with any financial venture, it’s not a risk-free option, but the existence of a tried and tested business model helps them avoid pitfalls commonly associated with first-time franchisees.

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