Worried About Franchise Losses? Avoid Common Franchisor Mistakes

When your business becomes ready for expansion, franchising is probably included in your new goals. As a franchisor, you can reach out to new customers and help new entrepreneurs start a well-known brand. You can follow the footsteps of popular fast-food chains and petroleum companies, and potentially be a big name in the industry you’re in.

However, just like any new undertaking in business, franchising can also fail. Many entrepreneurs make mistakes when franchising, either from choosing an incompetent franchisee or skipping a thorough planning process.

The money you can lose from a franchise failure may be hard to recover, so here are the ways to avoid making costly mistakes:

1. Know Your Roles as a Franchisor

A business owner and a franchisor have two different roles. The former comes up with products or services that their market will patronize. A franchisor, on the other hand, trains franchisees and obtains resources for them to maintain the business’s standards.

Franchise businesses fail when an entrepreneur confuses their roles as a business owner and franchisor. Unfortunately, being good at running a business doesn’t automatically make you a good franchisor. For one thing, recruiting franchisees alone is already a detailed procedure. Hence, you should hire a franchise consultant that’ll teach you about effective franchise development. With their help, you will gain an in-depth understanding of the concept, lowering your chances of failing.

2. Plan Thoroughly

As with any new project, franchising needs plenty of contemplation and planning. Saugata Banerjee, a restaurateur with over ten franchise units, advises entrepreneurs to compose a comprehensive instruction booklet for the business. It should provide the processes and rules of the enterprise in a step-by-step pattern. Avoid risking the company by opting for a trial and error method.

3. Don’t Rush Franchising

Just because your business has already grown doesn’t mean it’s ready to be franchised. Often, the one that succeeds in franchising isn’t the business with the best product or service, but the franchisor with the best execution.

Debaditya Chaudhuri, Founder of Chowman, a chain of Chinese restaurants, recommends waiting for two to three years before entertaining the idea of franchising. Assess the business model and the competition in the franchising marketplace before making the leap.

4. Ensure That You Have Sufficient Capital

Rookie franchisors often think that the Franchise Development Process (FDP) is the same as having the Franchise Disclosure Document (FDD) prepared for. That causes a failure in budgeting for the development process and the post-launch procedure.

The solution is to plan the budget requirements for both the development and post-launch process. With the help of your consultant, draft a plan and strategy for the next five years.

5. Regularly Monitor Franchisees

calculating costs

Once you already sold a franchise, focus on monitoring if your franchisees are earning ample revenue. Your system must meet its standards for consumers and its promise to franchisees.

If a part of your system is failing, you must make adjustments right away. A sustainable franchise system requires timely actions to prevent failures.

6. Represent a Good Business Model

A good franchisor treats their franchisees with dignity, including those at their weakest point. If a franchisee fails, help them egress their business with the maximum amount of equity they built up before the expiration or termination of their contract. By doing so, other franchisees will still view you in a positive light, despite the negative situation.

The risks of franchising your business may be inherent, but you can significantly reduce its effects through intensive planning, budgeting, and being a reliable leader. Each day of being a franchisor is a learning experience, so have experts behind you as well.

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