Franchising is a great alternative for entrepreneurs to building a business from scratch. It’s often considered a safe option because you’re creating a business which is already part of an established brand with an existing customer base, but that doesn’t mean it’s 100% secure. While there may be times you decide to hold off on entering a franchise altogether, here are a few common mistakes to watch out for along the way.
Don’t focus on a franchise which needs minimal investment
As the old saying goes, you get what you pay for. The more well-established a brand is, the more likely you are to be successful promoting the business, but that does come at a cost.
The flipside of this is that smaller franchises might be able to offer more support. Every business is different so shop around for the set up which is most likely to fit your needs, rather than simply on price alone.
Missing out on support and mentorship isn’t really ideal as it’s one of the pros of opening a franchise in the first place.
Relying on your instincts
There will be a lot of people out there, successful entrepreneurs included, who will tell you to trust your gut and listen to your instincts.
While your instincts might be great, that doesn’t mean they should be your only basis for measuring a business decision. That’s a sure way to make a mistake and leave you disheartened with a failing franchise. Instead, base any business decisions on solid research and comb through the data available.
Poor choice of location
Just because a brand is doing spectacularly well in one place, it sadly doesn’t mean it brand will do well everywhere. Different areas might have different tastes, needs, and income profiles, so factor this isn’t your decision making.
Location is also an important part of your service and marketing. A retail store selling childrens toys might struggle in the middle of a business park. A garden centre specialising in fruit trees will probably need a car park rather than a city centre location.
Having a building in an obscure business park isn’t going to get you much business if you rely on passing traffic, though it might be fine for an online-based business.
In order to pick the right location you’re going to need to do a lot of research. It’s not a simple case of the place feeling right or having good facilities (although that’s important). You need to look at every possible angle, for example:
- What is passing traffic like?
- What are the other businesses around doing well/not so well?
- Is there enough parking space?
- Is it easy to get to via public transport?
- What’s the local recruitment pool like if you need to hire staff?
Going it alone
You started a franchise for a reason; so that the company had your back. Ignoring their advice or procedures when you don’t agree is unlikely to be in your best interests! You could end up harming the reputation of the brand, but you’re also missing out on their experience. Treat the relationship as a conversation, rather than simply following orders or going off-plan.
Being the first franchisee can be risky
Every organisation is different of course, but it’s often more risky to be the one who goes first. If you’re going to be the guinea pig franchisee for a brand, then it’s more likely you’ll both have a steep learning curve to deal with.
They won’t have the experience of supporting another business owner meet their expectations, and might not be prepared for the level of guidance they need to provide. Likewise, you won’t have other franchisees within that brand, so they’ll be your only contact. This isn’t necessarily an issue depending on what they’re like to work with, but it’s certainly something to be wary of.
Underestimating costs
Franchises can be expensive business, because you’re partially paying for the element of safety and support and also for the brand’s reputation. There may also be more than the franchise fee alone, including legal costs of getting the whole thing set up. You could end up with a nasty surprise if you don’t prepare for these.
Like with any business venture it’s important to have an emergency fund that you can fall back on should an unexpected cost or repair threaten to slow you down.
Running your own business as a franchise means you’re responsible for recording, reporting, and paying tax on your profits. Learn more about tax for franchisees in our article.
