Many aspiring entrepreneurs dream of establishing their own franchise. That’s because it’s a very profitable method – allowing them to use existing brand equity to win. But the challenges of running successful franchise businesses often surprise most of them.
Do Franchise Owners Face Challenges?
From the outside, owning a franchise seems like a straightforward business proposition. You don’t need to create a product from scratch. You don’t have to think about how to make your name memorable and you don’t have to work on the basics because those are already there.
Instead, you are an established brand owner with strong marketing muscle. That being said, successful franchisees overcome many challenges before turning a profit. Some of these challenges include cost, the struggle to hire and retain skilled workers, and strict regulatory compliance, to name a few.
10 Challenges Facing Franchise Businesses
There are many things that must work for your franchise business to succeed. Deciding on the right franchise locations and choosing the right franchisees are some of the things you should keep in mind.
Now let’s take a closer look at some of the challenges franchise business owners often face.
1. High operating costs
Starting a franchise business requires you to spend money. And you will need less. For example, a Taco Bell franchise will cost anywhere between $1.2 million to $2.9 million plus $45,000 in franchise fees.
Some brands also need franchisees who wish to have a large amount of money on the table when they speak. This is important from the franchisor’s point of view as it shows the new ability to scale up when needed. For budding entrepreneurs, however, this requires a lot of work before jumping in to negotiate franchise agreements.
2. Building sustainable infrastructure
A common problem for a franchise is building a strong infrastructure. New franchisors find this difficult because it takes time and effort. There are various things to consider to make sure you have a smooth business.
3. High employee turnover
Compared to other businesses, new franchisees face a very high turnover rate. This is especially true in the restaurant industry which sees about a 75% turnover rate for employees.
Given the importance of good customer service in a franchise business, high employee turnover presents a major challenge for business owners. What makes this even more difficult is that the right workers are almost always in high demand. Since they can easily find a job elsewhere, it is difficult to keep it for long.
4. Maintaining product consistency
Being closely associated with a well-known brand may sound like a good idea for your business, but it has its share of challenges. Branding, for example, is one area where you will have limited control. In addition, any small controversy surrounding another franchise of the same brand could have a negative impact on your margins.
5. Long approval process
Franchisors rely on franchisees to promote their brand. That’s why they often have long and complicated processes before approving a potential franchisee. It is also important to note that franchise agreements often include 10-15 year contracts. In other words, a long approval process is common before things start moving.
6. Success in the area
Researching the local community should be at the top of your priority list if you are thinking of setting up a franchise. This is important because your target audience will determine your success. So try to understand who they are, what they want, and why they should be interested in your business. While researching a property, it’s also a good idea to analyze the competition and find out what they have.
7. Lack of independence
In many cases, entrepreneurs struggle with the idea of having little control over their franchise business because the product calls all the shots. For many business owners, this is a difficult situation to be in and often these businesses fail. The important thing to remember is that the franchisee and the franchisor are partners in the business. They have the same goal of achieving success. There must be mutual respect and a good understanding of how the business will be managed.
8. Building a strong team
Like any other business, a franchise must have a strong team to achieve long-term success. Keeping employees happy and motivated is essential to stand out from the competition. It is also important to keep training them on technology to better support customers.
9. A sophisticated exit strategy
You may have a strong franchise business and it can still fail due to factors beyond your control. That’s why it’s important to know how to get out of it to minimize your losses. In some cases, however, going out of business can prove to be more difficult than you think. It is also worth noting that different franchise systems have different strategies when it comes to exiting.
10. Finding work life balance
Owning a franchise can’t be a hassle. It is a full-time job and involves the same pressures of running a company. In order to find success, you will need to pay close attention to every little detail that can make your business fail.
What is the Biggest Challenge Facing New Franchisees?
The biggest challenge, by far, for new franchise owners is getting the money to start their business. Although franchisors support incoming franchisees with training, they expect them to meet certain criteria before approving their application. Having enough capital in the early stages is essential to success.
When is the Time to Contact the Business Office?
As an aspiring franchise owner, you should have the basics in place before contacting your franchisor’s business office. A clear business plan and proper financing are some of the things that must be secured before moving forward.
What Are the Biggest Risks of Franchising?
Some of the biggest risks of franchising include putting money on the table before you set up your business, getting enough money to get permission, and potential damage to your franchise caused by factors beyond your control.
Is Starting a Franchise Business Profitable?
Despite all the challenges, starting a franchise business is very rewarding. With the right team, a supportive franchisor, and a clear vision for your company you can turn things around.
READ MORE:
Photo: Envato Elements
