When Franchising Might Not Work For Business Owners

Over the years, franchising has gotten pretty a bad reputation, mostly due to a small number of franchisors trying to squeeze as much money out of franchisees. On top of that, some of these “bad” franchisors aren’t sufficiently prepared for franchise expansion. Or even worse, not knowing what they need to prepare and have in place at all.

Related: Franchising Your Business Without A Franchise Consultant

While you may be running a successful business and had perfected your operational processes, it takes more than that to go into franchising. Creating a proven business model is one thing, teaching another party to have a go at replicating that same success is quite something else. So how are you as a franchisor? Are you fulfilling your responsibilities and doing all you can to help your franchisee? Or are you doing something that makes you a “bad” franchisor, whether knowingly or unknowingly? Because all these would contribute in some way whether franchising could turn out to be a hit or miss.

Does Not Have A Proven Business Model Or System

People invest to make money, and they want to buy something that works. If the franchise opportunity being offered does not consist of these two basic elements, what exactly is being sold here? If the answer is something like “believe in the business”, you’re coming out looking like a scam.

Inadequate Franchise Support & Training

For the payment of franchise fees, franchisees will get in return the initial support and training required to successfully replicate the original operations of the franchise. Naturally, when you structure your franchise fee, you should also include the costs for providing the related necessary support and training to franchisees, and maybe even include the cost of selling that franchise. But if you don’t plan for sufficient support resources and don’t structure an effective training schedule for franchisees, how will they be able to gain the necessary knowledge and skills to make the business work? In this case, the possibility of franchisees messing up and ruining customer goodwill is a highly possible scenario, and this leads to a negative impact on the overall brand image. Is this really how you want your brand to be represented, by parties who barely have any idea what they’re doing?

Inadequate Advertising & Marketing Support

Unless your brand is spectacular enough that people rush through the doors to make purchases (think Apple), the need for advertising and marketing to be competitive in today’s sea of competition is now more apparent than ever. Even the fruit-named technology company still invests in regular advertising and marketing campaigns. If you do collect some sort of advertising fund from franchisees, you will need to account for that expenditure — stating why there’s a need for the collection and how it’s going to be spent.

Does Not Offer Exclusive Franchise Territory

As a basic guideline, and depending on the business and location, a franchisee’s territory rights could typically be anywhere from 2-4 square kilometres (other variations may apply for different circumstances). Territory exclusivity provides protection for franchisees from over-saturation of a certain location with the same brand. But when two franchisees from the same franchise system are competing for the same group of customers in an overlapping area, it really doesn’t seem like they are on the same team anymore. What happens next could be an all out fight for survival and at least one party will suffer.

Does Not Use Royalties To Improve The System Or Fund Support Resources

Franchising entails not just providing support at the initial phases, but at an on-going rate too. However, providing reliable on-going support comes at a cost, with some common expenses coming in the form of additional hires, traveling-related costs or even development of teaching material. Furthermore, franchisors are also expected to continually improve the system. It could be a new product or service that may potentially boost profits, or it could be a new operational process that is more efficient and effective.

If you’re not allocating royalties collected to either improve the franchise system or fund your support resources, how are you going to fund these actions? Or is all that money going straight into your pocket? Because that’s how it will look to franchisees.