While opening a franchise can be a simpler, less risky means of becoming an entrepreneur and local business owner, there are nonetheless many pitfalls and heartaches that can go along with any venture if you go about it the wrong way. Many a franchise owner will tell you they wish they had done more research before getting started. Here are ten of the most common mistakes made by franchisees.
1. Failing to Read the Fine Print
Buying into a franchise without the help of a seasoned franchise attorney is probably the biggest mistake that new franchisees make. The most powerful set of optics will not prepare you for the fine print involved in a franchise contract, and the legal lingo can be positively mind-boggling. Before you fork over your hard-earned savings and commit the next 10 to 20 years of your life to this new enterprise, make sure you have explored the ins and outs of the contract with your attorney, and that you understand all of the possibilities and contingencies involved.
2. Choosing the Wrong Franchise
Don’t be suckered by the lure of a hip and trendy new franchise. The power of a franchise is in its proven track record, not flash-in-the-pan popularity. Invest in a solid franchise that has stood the test of time and performed well in a variety of different economic climates. You’ll also want a franchisor that’s a good fit for you – culturally. Check out message boards and discussion sites to see what other franchisees have to say about their experiences.
Additionally, be sure to choose the right business for the right location. Of course you want to choose a franchise that inspires and excites you, but if your potential customers don’t share your enthusiasm you’re just simply out of luck. Research the community and plumb the demographics of your target audience. Check out potential competitors and see whether the area can support another similar business.
3. Cutting the Wrong Corners
Getting started can mean a large up-front investment in equipment and supplies. Write a comprehensive business plan and budget for everything you’ll need. Cutting too many corners at the start can lead to long-term complications, from equipment failures to lost revenue and even possible customer lawsuits.
4. Settling for Mediocre Employees
Your employees are the heart and soul of your new franchise. Take the time to recruit hardworking, personable employees that will represent you well to your customers. Develop thorough and thoughtful job descriptions, keeping in mind the kind of personnel that will interact well with your customers. Don’t scrimp on salaries; pay your people what they’re worth and you’ll have more time to spend building your business instead of interviewing and hiring new workers.
5. Forgetting About Uncle Sam’s Cut
Get some assistance from a tax attorney when writing your business plan, to maximize your deductions and factor in tax liabilities for your new franchise. Too many franchisees forget all about this particular detail until they get an unpleasant surprise at tax time. The best time to start thinking about taxes is April 16th — for next year.
6. Failing to Work Towards Goals
While your business plan likely has a set of (hopefully) attainable goals for one, two, five and ten year increments, it’s important to remember that they’re not just figures on paper for the purposes of getting a loan. These should be realistic goals that you are actually working to achieve. Instead of burying them in your business plan, post them on your bulletin board and measure your success against them on a regular basis.
7. Ignoring Customer Reviews and Feedback
Customer reviews are a necessary part of doing business in this day and age, when social media posts can go viral and make or break a business reputation. Franchisees who ignore a bad review on their Yelp site do so at their own peril. Conversely, social media and review sites offer business owners a terrific opportunity to interact with customers and get feedback, both positive and negative in order to improve their operations. Be sure to respond to customer comments and reviews, and smooth any feathers ruffled by a bad customer experience.
8. Not Understanding the Franchise Model
If you’re getting into a franchise in order to be your own boss and do your own thing, then a franchise may not be for you. The franchise model is based on conformity and uniformity. You may be the boss of your own operation, but you’ll still have to answer to a higher headquarters. Many decisions will be out of your hands, and the hard work and long hours required to start up a franchise may even dictate your work schedule.
9. Putting Too Much Expectation on the Brand
Number one in franchise marketing mistakes is failing to do your own marketing. It’s important to remember that franchises fail on pretty much the same scale as independent businesses. Of course, your choice of franchise will make a big difference, but complacency can doom you to failure nonetheless. Even with a strong, popular brand, you’ll still need to develop and implement an effective local marketing plan in order to ensure the success of your operation.
10. Failing to Read the Fine Print — Again
Even after many years of operating a successful operation, you could be told that your franchise contract is not being renewed. Franchisors make such decisions every day, often to the detriment of the affected franchisees. It’s important to realize that the franchisor holds all the cards in this game, and can make changes at any time, from procedures to product lines to locations and more. Once again, consult a seasoned franchise attorney at the outset and be prepared for the worst. Unfortunately, the term “buying” a franchise is a misnomer; you’re really only leasing it. Realize that it may only be a short term deal and be ready with a backup plan.