Watch out for as a New Franchise Owner

5 Worst Pitfalls to Watch out for as a New Franchise Owner

“Expect problems and eat them for breakfast.” – Alfred Montapert

Dickey’s was once one of the largest and fastest barbecue chains in the United States.

Between 2010 and 2015, they had more than 500 restaurants throughout the country. A remarkable feat from their 1941 origin story.

But in 2018, the leading franchisor terminated 89 restaurants. This was in part due to serious business challenges.

In an interview, Anthony Falbo, one of the businessmen affected by these closures had some sobering words to share:

“My business didn’t fail on me. It ran out of money.”

The franchise industry can be a lucrative and thrilling step for entrepreneurs.

Franchising gives entrepreneurs a chance to explore their new ideas. They can grow from an already successful business model.

They can also tap into a fresh, energetic and highly engaged workforce.

Image about avoiding franchise mistakes here

There’s more good news. Franchising is still a big business.

In 2019, the estimated economic output was $787.5 billion. This number is only for the United States.

But as it is with all new businesses, a unique learning curve exists.

To build a successful franchise you have to study and master the core business model first.

Here Are 5 Pitfalls to Watch out for as a New Franchise Owner:

1. Insufficient Research

Most entrepreneurs choose to invest in brands they are already loyal to. But while passion is important, there are many mitigating factors to consider.

Start by looking at some publicized cases from the broader franchising world.

These stories do not serve as a deterrent to business. They show you the real problems franchisees may face. Most of them are due to poor foundational planning.

A franchisee should look into what critics are saying about the franchisor. There’s information within discussion forums, customer reviews, message boards, and social media platforms.

Explore any potential blind spots before entering a legal contract with a franchisor.

Note past and present complaints from other franchisees in a similar chain. See what solutions they found.

Mark Siebert wrote The Franchisee Handbook: Everything You Need to Know About Buying a Franchise. He shares some key questions entrepreneurs should ask during a franchise’s Discovery Day.

The areas these questions touch on include:

  • How is the franchisor trying to differentiate themselves in the franchise marketplace?
  • Who is the customer at the end-user level? What’s going on in that market?
  • What happened to the market over the past five years? How did it affect the franchisor’s market share and strategy?
  • Who are the franchisor’s new competitors?
  • Who are the major vendors? What are their terms on initial inventory and ongoing purchases?
  • What is the franchisor doing to secure the best prices on products?
  • How much does the franchisor spend on research and development? How much of this is a percentage of revenues?

This list of questions is hardly exhaustive. But it should serve as an excellent starting point.

With enough research, a new franchise owner can look forward to these benefits: 

  • Finding out whether the franchise shares their business values
  • Getting a good  picture of the business’ expected financial responsibilities
  • Understanding where the franchisor stands on corporate culture
  • Figuring out how to build a successful and productive team.
  • Anticipating any issues that arise before they actually happen.

2. Not Hiring a Seasoned Franchise Attorney Before You Sign a Contract

A franchise lawyer will always have the client’s best interests in mind.

Consider this a major and indisputable need before joining a franchise.

Most entrepreneurs hire legal representation in one form or another.

But they need a representative who has extensive experience in franchise agreements. They understand business and contractual nuances that a layman may overlook.

A franchise attorney will, thus, help you to:

  • Break down complex legal language: The franchisee has to understand two crucial documents before making the final plunge.
    They are the Franchise Disclosure Document (FDD) and the Franchise Agreement. FDDs and Franchise Agreements are dense and often lean more in favor of the franchisor.
  • Analyze competitors’ financial and qualitative data: Since they often work with similar companies attorneys are an invaluable resource.
    They are best placed to know the intricate but often overlooked details of each brand. This is information that entrepreneurs can’t find anywhere else.
  • Negotiate better terms: Most franchisor terms are non-negotiable. But  a franchise attorney may be able to help an entrepreneur navigate:
    Royalty payments
    Litigation disputes
    Franchise territories
    The right to close

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3. Insufficient Financing

Entrepreneurs need to keep a six-figure bank balance before they even open shop. The bigger the franchise investment, the greater the future return.

Most reputable franchisors show the franchisees’ necessary financial figures. But new franchisees sometimes underestimate the cost of business.

Without proper funding, the entrepreneur will always be scrambling from month to month. They will also fail to enjoy short windows of rising business opportunities.

Proper financial planning helps you to:

  • Determine what your actual net worth is
  • Prepare an accurate financial history or credit rating report  for potential lenders
  • Find potential partners or angel investors
  • Keep debts and expenses as low as possible
  • Plan for future risk and expansion

When it comes to capital, overestimation is always preferable.

4. Poor Marketing

One of the cardinal rules of marketing states a simple truth. People enjoy doing business with people.

The main advantage of owning a franchise is having an established brand to work with. But remember to think about the community that forms the core client base.

Franchisors issue their franchisees with marketing materials. But it’s up to the latter to devote the time and resources to put in place a solid marketing strategy in place.

Some key marketing strategies for a new franchise owner include:

  • Sticking to  brand consistency across the franchise
  • Making strong use of  word of mouth marketing
  • Designing a unique email strategy for each branch
  • Making an impact on social media
  • Using current content to grow the local franchise

5. Not Leveraging The Right Franchisor Support

Franchisees spread out across different geographical locations. But they are still part of a wider, sometimes even global team.

Strong franchisors provide support from the main office. Technology allows a seamless inter-team process from start to finish.

They ensure clear lines of communication. This is to allow franchisees to access the right materials and to engage with their peers.

Support is especially important for those low periods that come with new business.

The first six months to one year of a new business can be a rollercoaster. Successful franchisees are those that engage the home base.

A new franchise owner can seek support in the following ways:

Change The Way You Conduct Business

Buying a franchise doesn’t come with a manual on how to be a successful franchise owner.

But the right partner can make the journey smoother.

There are intricate details on running a franchise. These range from the management of information, finances, taxes and so much more.

World Manager has been helping businesses launch franchises into almost 60 countries.

We know that consistency is the key to franchise growth. But most importantly, we know the value of setting the pace with a strong foundation.

Our multi-award-winning, all in one platform will make it easier for you  to track

  • current or ongoing employee training
  • human resource materials
  • marketing, operations and communications resources accessible worldwide

Book a customized demo today.

Disclaimer: This information is meant to provide general guidelines and should be used as a reference. It may not take into account all relevant local, state or federal laws and is not a legal document. Neither the author nor World Manager will assume any legal liability that may arise from the use of this information.

The best companies use World Manager to train staff, maintain standards, and set the company up on the road to success.