Any business venture can be risky, and even though franchise programs have some built-in safety measures, some missteps still could sink your ship. Research and full preparation before opening and hard work always are essential ingredients for any successful business.
While most franchise programs offer you some classroom and onsite training, they don’t have the time to teach you everything you need to know about being a business owner. Things like managing your finances and filing your taxes you need to learn own your own. And no one is going to force you to give the attention to the day to day operations of your restaurants it needs. You need to do that yourself.
Check out these 4 overlooked business mistakes that could ruin your franchises:
1. Avoid relying too much on your gut
You may feel that you are completely tuned into your instincts and that they have never steered you wrong, but it is dangerous to rely too much on them. Why take the risk that you can successfully learn as you go? It is always better to be as prepared as possible going into a major financial decision like this.
Do your research, shadow existing franchises and teach yourself any financial skills that you know are essential for a business owner to know. Don’t expect the franchisor and their management team to fill in the gaps in your business knowledge and skill.
2. Don’t open your franchise without six figures in the bank
It is every new business owner’s dream to open their doors and have immediate success, but it rarely happens. It always takes from up to 6 months to a year before you start turning a profit. That is why it is so important to have enough money in the bank to keep you up and running in the lean times.
You also don’t want to jeopardize any loans you took out for your new business. Most banks require a personal guarantee on their loans if you own more than 20 percent of the business so the larger your loan, the more risk for you.
Opting for a guaranteed loan through the Small Business Administration is a smart move because it comes with some significant underwriting and guarantee requirements. Learn more here.
3. Be very careful picking your location
The location you pick for your franchise can really make or break your business. If there isn’t the right amount of foot traffic, ample parking and a community desire for what you are selling, then the location can really hurt your chances of being successful.
Remember that finding the right spot takes time. You need to visit all potential locations in person. Experts advise that you visit each spot a couple of times on different days and at different times for you to get the best feel for traffic and visibility of your franchise.
4. Don’t forget that you must follow the rules
One of the big things that people chafe at when it comes to franchises is that you have to follow all the requirements that the franchise lays out for you. If you prefer to make rules instead of following them, then joining a franchise program probably isn’t right for you.
There are a lot of benefits to being able to follow the franchise program though. They have spent the time energy to make sure their franchise model works so you don’t have to. Take advantage of all the resources they offer you so you can have the best shot at success as possible.
Be sure to read the franchise disclosure document very carefully and pay particular attention to franchisee failures, sample financials, typical operating costs and sample franchise agreements. Go over the operations and marketing manuals and make sure you completely understand what the franchisor expects of you. You don’t want to make mistakes out of sheer ignorance.
Another thing to consider when joining a franchise program is whether to buy into multi-unit franchises or to just buy a single unit. More and more franchisors are looking for franchisees who will juggle more than one so it is important to consider whether it would be a good fit for you.
Multi-unit franchises are when a franchisee purchased the rights to develop and multiple units in a particular territory. When you own multiple units, you are less likely to be involved in the day to day operations of a single unit. You will instead be focused on the overall management of all of your units. You will need to have general managers and staff you can trust at each of your units to make sure they are successful.
And as a multi-unit franchisee, you will sign an area developer agreement, which outline the number of units that you agree to open and in what time period and in what specific territory you will do so. Typically your territory is protected from encroachment unless you don’t fulfill all your agreements. If you don’t stick to the schedule laid out in the agreement, you could be at risk of losing your rights to open any more locations under the agreement.
A single-unit franchise means that you entered into an agreement with a franchisor for just one franchise unit and no expectations for later expansion into multiple units. Many single-unit franchise are owned by people interested in owning their own business, but are not looking for or don’t have the capital for a larger enterprise.
There are some definite advantages to owning multiple units. It lowers your overhead expenses per unit. While the initial startups costs will be higher for multi-units, once your units are established, you will be able to lower your overhead expenses per unit because you will have some fixed costs that will be shared across all locations. For example, if all your locations will share the same vendors, then you will be able to negotiate better deals for goods and services.
It offers you better stability. I am certain you have heard the horror stories of new franchise businesses folding in the first year. That is a big fear for new franchise owners, but it doesn’t have to come to fruition if you plan right and avoid the business mistakes mentioned here when running a franchise.
At MBB Management, we can help you avoid costly franchise mistakes. Call or send us a message today to see how we can help you.