6 Franchising Mistakes to Avoid When Starting a New Franchise

6 Franchising Mistakes to Avoid When Starting a New Franchise

The great thing about franchising is that someone else has already gone through all the most difficult parts about establishing a business for you. However, this could also easily bring about false confidence – a franchise is still your business after all, and has its own risks and responsibilities.

To help you avoid some of the most common pitfalls while you are adjusting to your new role as a franchise owner, here are 6 mistakes to look out for when starting out.

1. Underestimating Starting Costs

It’s not uncommon for franchise buyers to miscalculate the upfront costs. Truthfully, it can take up to one year before you begin to see a steady stream of profit, so you have to make sure you’ve set aside some money to cover the cost of running the business for at least the first year.

Also, take into account legal and accounting fees, tax and Employees Provident Fund (EPF), registration fees, leasing costs, and insurance. In some cases, your franchising contract will state what costs will be coming up over the term of your agreement, such as new equipment or new products, so budget for these aspects.

By ensuring you have enough working capital, you give yourself the best chance of getting it right. Otherwise, even successful businesses can become a total bust through simple cashflow problems.

2. Not Utilising Franchisor Support

The main benefit of becoming a franchisee instead of starting from scratch is that you get all that extra support from your franchisor. You should ask questions, seek tips, and get advice and call for support. Remember, this is a win-win partnership, and franchisors will be more than happy to help you help him/her grow their businesses for them.

You might be one of those franchisees who seek full autonomy and is hesitant to call for support and collaboration with the main office. Though you are expected to control and manage your unit on your own, you have to work according to the terms and conditions mentioned in the agreement and have to be willing to work as per the orders of the franchisor. This is to say, not only a good franchisor-franchisee relationship is a requirement, it is the smart thing to do. Why wouldn’t you want to take full advantage of the franchisor’s knowledge and experience and in turn, avoid mistakes?

3. Insufficient Research When Choosing a Franchise

Most of the time, people purchase franchises of a service or a product that they personally love and are already a loyal customer of. It is true that interest and passion is crucial when deciding on a franchise, there are many other more concrete factors you have to consider, such as the location, support, reputation, cost, and time investment.

You will quickly find that being just a customer versus having to learn the inner workings of a franchise are two completely different things.

You owe it to yourself to spend enough time doing your thorough research. At the very least, look at a few different locations of the franchise, seek opinions from your most experienced friends, and get professional legal or accountancy advice. Of course, it does cost money to get professional guidance, but a mistake is way more costly. A family lawyer, a best friend’s accountant, or a franchising agent will be able to give you pointers from a franchising perspective.

4. Not Preparing a Business Plan

The most dangerous mindset you can have is believing all the hard work has been done. Yes, as a franchisee, a framework would have already been laid out with clear steps that must be adhered to. However, every franchise needs to have its own separate business strategies with tailored financial goals for the store. You cannot avoid hard work by purely relying on the franchisor’s framework, as each franchise unit comes with its own unique set of challenges and objectives.

Running your business purely by the book and expecting it to roll in of its own accord? You’ll be disappointed. 

A basic business plan must have the financial projections for the next three years based on the forecasting of the franchisor and the accountant. You will need this to get the required funding from banks anyway. Plus, the plan must include all the right things that are derived from the franchisee manual, but adapted to your location. A consistent brand image, a great location, excellent operations manual, strong training program, a clear marketing program with relevant materials, and a reliable supply chain.

5. Having Too Much of an Ego

You’re purchasing an existing successful brand, so obviously your business will succeed the same, right? Unfortunately, there is no such thing as a guaranteed success. No matter how much experience or education you have, businesses are in its nature, unpredictable. You cannot be overly independent and refuse to be open to other people’s opinions and recommendations, especially your franchisor’s.

All you really get from a good franchise model is a good start. But each franchise unit has its own requirements, entirely under your responsibility. You need to be open to and be able to admit when you have made a mistake, then be able to rectify the problem and learn from it.

As a franchisee you will also have to be humble enough to be willing to learn from others and accept their recommended way of running your business. This is because you are required to undergo brand-specific training before you start.

6. Taking on too many customers

Strong marketing efforts are important to draw attention to your new franchise, but be careful not to overdo it. Especially at the start, your staff may need some time to ease into their roles and get used to the equipment. It is better to have a manageable number of customers than too many, otherwise you will risk your service or product quality, which in turn leaves customers with a bad impression that is difficult to salvage later on.

If you want to expand your customer reach, you must do so only after successfully managing the first few months. Make sure that you do not take up more work than you and your staff can handle at any given point. You don’t want your precious employees to be overworked and give them a not-so-good view of the way you handle your business. Excessive staff turnover at the start of a business will add unnecessary stress.

 

Remember, franchising is a semi-independent partnership.
This is what makes it appealing.

 

At the end of the day, it’s hard work and respectful collaboration that will make you a successful franchise owner.