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Common Franchising Mistakes – A checklist of things for Franchisees to think about

13 Mistakes New Franchisees Make — And How To Avoid Them

Source: Forbes
Author: Karsten Strauss

Common Franchising Mistakes – A checklist of things for Franchisees to think about

Image courtesy of [Chris Sharp] / FreeDigitalPhotos.net 

On its face, opening a franchise may seem like a simple way to run your own business. But beware, rarely is business simple and in the franchise world the business is never really yours.

Recently I had the chance to speak with Sean Kelly, publisher of UnhappyFranchisee.com, a landing board for franchise news and discussion between franchisees who know the darker side of the industry. According to Kelly, there are quite a few enterprising entrepreneurs who have opened businesses and wished they’d done more research. Since he began his site in 2007 he’s heard many a small business horror story and identified certain mistakes and blind spots many hopeful business owners fall prey to. He’s allowed us to publish his findings here.

Whether you’re looking to open a burger joint, a gym or even an apparel shop, below are a few nuggets of wisdom to contemplate before taking the plunge.

  1. The term “hot new franchise” is an oxymoron

Would-be entrepreneurs are eager to get in on the ground floor of a trendy new business. What they should do is the exact opposite, says Kelly. “The benefit of a franchise is really to buy something that’s been proven over a period of time. Hopefully something that’s been proven over different economic climates. So it’s done well in good times and in bad.”

  1.   Don’t buy a franchise to “be your own boss” or “control your destiny”

Franchising is based on conformity and uniformity, not freedom. As a franchisee, you do not really hold the reins. You may technically be the boss of your shop, but you must follow the orders of the home office. “Franchising is similar in a lot of ways to joining the military in that you’re going to agree to follow orders, you’re going to wear the same uniform and you’re going to march up the hill together and try and accomplish the same mission. Buying a franchise in order to control your own destiny is akin to joining the marines in order to ‘do your own thing.’”

  1.   Franchises fail with about the same frequency as independent businesses

The myth that franchises are less prone to failure than other small businesses is simply that. The reality is that they generally go out of business at the same rate. However, which franchise you choose can make a big difference, says Kelly. “Some franchise chains have failure rates as high as 80% to 90%, while others have almost no failures.  Don’t be seduced by vague statistics or common wisdom; do careful research on the specific franchise you are considering to determine how many franchise owners are still in business through the full terms of their franchise agreements.”

  1.   Don’t be seduced by positive press clippings, industry rankings and awards

According to Kelly, it’s not uncommon for the members of his website to report mass unrest and failure at franchises that are being championed by the entrepreneurial press. “Stacks of article reprints and accolades from the entrepreneurial press is often more of a testament to the aggressiveness of their PR efforts than to the strength of their franchise program.”

  1.   Seek out franchisee complaints online

Before signing a legally binding contract with a franchise organization, it may be a good idea to see what that company’s critics have to say. For that there are message boards and news/discussion sites where franchisees can air their grievances and give advice. Kelly, who runs such a site, also recommended BlueMauMau.org.  “The complaints of franchisees past and present indicate which aspects of the franchise deserve careful scrutiny, and what prospective franchisees can expect.” Know of other places to get feedback from franchisees? Comment below.

  1.   Hire a seasoned franchisee attorney before you sign a contract

The number of people that buy into a franchise without having a lawyer explain the contract agreement to them is astounding, says Kelly. Ignorance, in franchising, is not bliss—it’s a potential nightmare. “They’re making this huge commitment of hundreds of thousands of dollars up front, they’re securing it with their house, they’re committing to what they’re going to be doing sometimes for the next 10 or 20 years of their lives. It’s remarkable how many of them won’t hire somebody who is experienced in franchising to help them the franchise opportunity that they’re looking at or even go through the franchise agreement and explain to them what they’re signing.”

  1.   Be wary of free franchise “coaches” and consultants

These consultants live on the web and are ultimately a lure for the franchises that hire them, says Kelly. Best to just steer clear. “They’re third-party commissioned salespeople and brokers and they have very little franchise experience except for delivering prospects to the franchisors that they have commission arrangements with.”

  1.   Understand that the franchisor holds all the cards

Franchisees are not part of a larger collaborative relationship and they are not part of a team. They have essentially taken on a master and that controlling force has the upper hand at all times. “Most franchise agreements give franchisors the power to change required procedures, radically alter the product line, or require franchisees to make unexpected expenditures.” In the mountain of legalese that are franchise contracts, franchisors can even sneak in language absolving them of any number of lies and misdirection while taking away the franchisees’ right to raise a grievance.

9. Don’t expect government oversight or help

Franchisees are not consumers and not protected as such, they are considered entrepreneurs and business investors. Despite what some would-be franchisees believe, the government oversight in the industry is paltry at best. “The (Federal Trade Commission) instructs franchisors to disclose certain types of information to franchise buyers, but doesn’t check to see if they do so,” says Kelly. “If your franchisor doesn’t perform as promised or if you later feel you were lied to or misled, it’s likely that your only recourse will be to hire an attorney and file an expensive lawsuit.”

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