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Success Rate of a Franchise: Key Mistakes to Avoid

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There are several missteps that can negatively impact the success rate of a franchise and leave any franchise buyer very dissatisfied.  As you go through the franchise search process you will run across people who have made mistakes in starting their franchise.

They will, most often, fall into several predictable categories.  As you talk to them, keep the following items in mind:

Make Sure You Have Enough Capital

It is true that before buying a franchise you will receive a detailed disclosure document (FDD) outlining the costs of the business.  In addition to that, you will have numerous discussions with the franchisor that will try very hard to make sure you are financially qualified to own a business.

Plus, you will work through your business plan with a bank in order to secure financing and make sure that you have enough cash flow to succeed.  And yet, every franchise system has franchisees who have failed because they simply did not have enough money.

In the end, it is you who is responsible for managing your franchise and your money.  To improve the prospective success rate of your franchise, make sure that you have a budget flexible enough to handle diverse situations, put in place a contingency fund, stick to the manual and watch every expense like a hawk.

Don’t Save Money on Marketing

It is inevitable that every time the economy slows down, the revenue dips or you lose a big customer there will be pressure to cut marketing expenses.  It is certainly easy to do, most of the time.  Just don’t buy ads for a few months and you have money in the bank, right?

That is, of course, is a mistake.  Unless you got an unbelievable word or mouth or a viral campaign you will feel the long-term negative impact of cutting marketing expenses very quickly.

The good news is that a large number of franchise companies realize that and often require their franchisees to spend a certain amount on marketing every month.  Remember, you have to bring in new customers to grow your business.  Customer acquisition costs are almost like cost of goods sold in many businesses.

Stick to the goals you set for yourself before you bought a franchise and look for savings in other areas.

Talk to Existing Franchisees before Buying a Franchise

This is a big one.  The more current or former franchisees you talk to the better.  You can get their contact info from the FDD.  Take your time in this process and make sure to talk to 5, 10 or even 15 franchise owners in each system that you validate.

Go to the company annual meeting if the franchisor will allow you.  Ask tough questions and concentrate on financial performance data.  If you buy a franchise after talking to only 2-3 people, and the business does not work out, you will have only yourself to blame for not doing enough.

In the end, existing franchisees are the real franchise experts who can give you the best information about the probable success rate of a franchise.

Accurately Estimate Your People Management Skills

Managing people is the biggest challenge for many small businesses.  As a potential franchise owner, you have to realistically assess your capabilities in that area.  Sure, the franchise company can train you and provide some day-to-day guidance in relation to managing your workforce.

However, it is up to you to build a dependable, productive and efficient team.  If you have no experience in that area and are not looking for that type of a challenge, then try to focus on franchise opportunities that require a minimal amount of employees.

Buy the Right Size Franchise

Make sure to accurately assess your future plans and income goals as a franchise owner.  You will have to make sure that the franchise you plan to buy can offer the territory size and growth potential you are looking for.

Sure, you can grow one unit/territory at a time.  However, territory availability is rarely guaranteed by the franchisor, and you will never be in a better negotiating position then before signing your franchise agreement.

Size does play a big role in the success rate of a franchise so it is worth it to have your entire future growth plan on the table before you buy.

Follow the Franchise System

Not following the system is probably the worst mistake you can make and is the true culprit behind the majority of struggling franchise locations.  Once you buy that franchise it is perfectly normal to feel confident in your abilities and future prospects.

However, do not assume at that point, that you can do more than the franchisor to make your business successful.  Stick to the operations manual, believe in the system.

Do not worry; you will have plenty of opportunities to engage you entrepreneurial spirit, but leave any changes of the business model to the franchisor.  

In sum, franchising has a much higher rate of success than independent businesses and offers a number of “safety nets.”  However, that does not mean that your success is a given.  

Plus, it is important to note that during the process of looking for a franchise it is often more beneficial to talk to people who have struggled in their effort to get a business off the ground.

Their journey can provide a valuable lesson on what contributes to the success rate of a franchise.  The goal, in the end, is to avoid the issues mentioned above.  As a result, you will greatly improve the potential success rate of your franchise business.

For more on finding the right franchise go to: http://franchise-opportunities-search.com

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