Why Do Franchisors Fail?

Franchising is full of success stories but there are many others who have fallen by the side too. So how is it some franchisors achieve major success while others fail and disappear into oblivion?

Related: 5 Factors every Business Should Possess Before Franchising

1. Not Accounting For Franchise Costs

Most prospective franchisors only prepare a budget for the development of the franchise system and model, but that’s only the starting point. Unfortunately, most don’t take into account the ongoing costs of running a franchise. Furthermore, franchisors also need to understand there are additional costs involved for franchisee recruitment, training and even maintenance of the system, to name a few. Without knowing the actual financial overlay from starting through running a franchise and preparing for it, it’s no wonder the franchise seems unsustainable when all these new expenses appear.

2. Inadequately Prepared

Many franchisors start franchising before they are ready, before being able to prove they can re-create their success in another market or even figuring out their uniqueness. Furthermore, they may have under-developed operational processes, training programs, or may simply just be a knockoff in an already saturated marketplace.

Related: 5 Factors Every Business Should Possess Before Franchising

3. Poor Recruitment

It takes great courage for a franchisor to turn away an unsuitable prospective franchisee’s money, especially when the franchise is young. However, some franchisors may place signing on new franchisees above all else. Unqualified candidates who go on to become franchisees may not be able to efficiently or effectively run the business, much less successfully. What happens next is the quality that customers associate with the brand will be negatively affected. Inevitably, this will snowball to everyone under the franchise flag.

Related: What Should Franchisors Consider During Franchisee Selection?

4. Looking For The Quick Buck

Unethical franchisors view franchising as a cash grab through franchise fees, and that’s all they really want, without any operational expertise or concern for franchisee profitability. The worst ones may not even have had engaged a franchise consultant to develop a dedicated model for the business, but rather just copied current market offerings of other popular franchises. Once prospective franchisees see franchise units performing badly, it will be pretty clear to them that something doesn't quite add up. Remember, good news spreads fast while bad news spreads faster.

5. Unrealistic Expectations

Some franchisors may begin franchising with unrealistic expectations, thinking that people are going to be running through the doors and throwing up life savings just to be associated with the franchise and brand. While being confident of success is a good thing, being realistic is also equally important. And when things don’t go their way and they are unable to secure any franchisees, they start to give up.

But franchising is like running a marathon, not a sprint. Selling a franchise and selling your product or service are two completely different things, or even businesses for that matter. If a franchisor doesn’t have the patience to commit to a 3-5 year development plan, it may be much better to focus on business expansion by way of company-owned units instead.