As a franchise consultant, a question I commonly hear is “What mistakes are frequently made when you franchise your business?” Here are some more common franchising blunders to avoid:
- Selling a franchise just to generate money (covered last blog)
- Ignoring prospective franchisee red flags (covered last blog)
- Franchising your business simply to get out of a financial hole (covered below)
- Spreading franchises too far apart (covered below)
- Not getting to know the prospective franchisee well enough
- Overselling your franchise opportunity
In my previous blog, I addressed the first two mistakes: selling a franchise just to generate money and ignoring prospective franchisee red flags. In this blog, I will address mistakes three and four.
Franchising your business simply to get out of a financial hole:
Companies that create franchise programs simply to solve a financial problem in the parent company seldom succeed. When you franchise your business, it is an investment in the future, a long-term growth strategy.
Typically, using franchise fees to pay for financial shortcomings in your core concept is similar in outcome to a pyramid scheme. Using money from new franchisees to pay off past financial missteps will usually end badly when you franchise your business.
Further, achieving success when you franchise your business is usually based on your franchisees being satisfied with their investment. You must list all current franchisees in your franchise legal documents as well as any franchisees who left your system within the past year. Unhappy franchisees are likely to share their opinions when they are approached by people considering buying your franchise. Unhappy franchisees make it difficult, if not impossible, to sell additional franchise locations when you franchise your business.
Finally, if the franchisor is financially strapped, it is unlikely to possess the requisite financial resources to enable it to provide adequate training and assistance to its franchisees. It is this training and assistance that usually make new franchises profitable when you franchise your business.
Spreading franchises too far apart when you franchise your business:
For many franchise concepts, it makes sense to cluster your franchise locations when you franchise your business. If your franchises are too far apart, the cost of servicing them (usually visits by field reps) goes up exponentially. These costs are paid by the franchisor. It is also much easier to realize economies of scale, such as savings on inventory, supplies and marketing, when your locations are close enough to utilize the same vendors. In addition, when you franchise your business, if your locations are grouped, it is easier to build the brand name and reputation. For these reasons, for many franchise programs, it is better to place your franchises closer together when you franchise your business than it is to scatter them across too many markets.
Thinking About Franchising?
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So, if you are still asking the “should I franchise my business” question over and over with no clear direction, give us a call at (706) 356-5637, or contact us through our online form. We look forward to helping you take your business to the next level and beyond.