Five Reasons Why Franchises Fail

Over the past twelve years, I have been a franchise owner and the past four years have been a franchise and business consultant. Although owning a franchise is one of the best ways of getting into business, I have seen a few failures.

A franchise is an optimistic endeavour that many budding entrepreneurs are excited to partake in. On the outside, it may seem like a straightforward journey which can lead to wealth. Although, in order to have success in the franchise industry you must have a process which will lead to your success. Below we have listed the top 5 reasons as to why franchises fail and how you can avoid failure in the industry.

1. Capital

The most important reason as to why franchises face difficulty pertains to capital.

Franchises take a significant amount of money to be run efficiently and not having enough money in the franchise will lead to not fulfilling the franchise operations to the best of its ability.

With this in mind, it makes great sense to continue to have an excess amount of capital ready to be deployed to the franchise when it goes through tough financial times. This strategy also would have worked well during the early stages of the pandemic as many businesses in the franchise realm were low on capital at the time.

Another mistake made relating to capital is not reinvesting the capital into the processes that generate the revenue. It is important to be very analytical when it comes to using the company cash and making sure that it is used in the most efficient way possible.

2. Planning

Planning is key to all the success in the franchise industry. The common cliche is that “if you fail to plan you plan to fail”.

This rings true in the franchise world as future plans must be executed correctly in order for it to pan out well.

Planning is part of the process but deviating away from a plan can also cause your franchise to fail if the change of plans is not well thought out.

3. Leadership

Leadership is what separates successful and unsuccessful companies. In order to stabilize the ship so to speak, there must be someone who can calm the waters as in someone who thrives under pressure and can bring reassurance to all of the people on the boat.

The proverbial captain of the ship is the one that can lead you on the journey to success but only if you focus on the strengths of everybody on the boat. It makes the most sense to focus the hiring process on experience, leadership skills, willingness to learn, and ability to adapt. These are some key interpersonal skills that can make or break the franchise.

4. Marketing

Marketing is very crucial to the success of any business and especially a franchise business. Franchisees pay into a brand fund so it is important for the Franchisor to have a marketing strategy that supports the franchisees in different regions.

This is more aptly applied to franchised businesses in a city as there is potential for many locations in one area. Not only that, but you have to focus on having lasting branding and very innovative marketing campaigns in order to stand out in the short attention economy.

5. Location

The location of the franchise needs to be one that is very strategic. Depending on the industry that you are in, different types of spaces are needed. The location that a business owner leases is the key foundation for success.

in a regular brick and mortar business, the location can be the major reason why the sales increase or decrease. If your franchise relies on foot traffic for success, it is even more important to choose the right location, the right rental rate, at the right time.

Lack of visibility for your storefront can cause people to drive by it.

The opposite is also true. Choosing a location because the rent is cheaper, but it is in the wrong neighborhood can also be detrimental to your business.

This reminds me of a story about a business acquaintance who chose a location purely based on the fact that he liked the price and did not consider if it was a match for his ideal clients.

Finding the right location is by far one of the most important part of your franchise and the main reason why they fail.

Franchises can fail for many reasons but the 5 reasons above are crucial for the success of the franchise.

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