Three Reasons Franchisees Fail and How to Avoid them
South Africa has a proud history of franchising dating back to the sixties with the birth of Steers, the first local franchise. Soon after, iconic franchises like Spur, Chicken Licken and Debonairs Pizza emerged. What’s extraordinary is that around 90% of South African franchise concepts are locally developed. Yet, not every concept succeeds and franchisees can fail even when they have the backing of a strong franchisor. So what is behind franchise failure? Read on to learn about the three reasons franchisees fail.
Failure rates in franchising
According to the recent Franchise Association of South Africa (FASA) survey, the failure rate of franchising is less than 10%. That’s a stark contrast compared to the over 90% of independent businesses that fail.
If you’re a potential franchisee, you should be heartened by these statistics. Franchising offers new business owners the support of a good brand, initial training and solid systems. This doesn’t mean you don’t have to work hard to make your business a success.
Why franchises close
- Lack of commitment
Some franchisees assume their job is to open the business and have someone else run it. BIG mistake. There is no one else who is going to commit to your business like you can. For a manager, it is just a job. For you, it may be your life’s savings that is at risk.
When you become a franchisee, you MUST work much harder than you have in the past. Totally commit yourself to the daily operations. In the long run, this commitment breeds success.
- Bad hiring decisions
In a bid to open the business and get going, some franchisees make poor hiring decisions. Later on, they end up with inexperienced or incompetent staff. As a result, the business suffers.
The cost of hiring the wrong employee can be between four and six times the employee’s salary. That’s according to a study by The Chartered Institute of Personnel and Development.
Costs that come with hiring the wrong employee include:
- Recruitment costs;
- Training costs;
- Decreased productivity costs;
- Employee morale costs; and
- Reputation costs.
Rather than losing all the time and money associated with making a bad hire, take your time when you recruit to ensure you get the right person. Plan the interviews so you can accurately assess candidates’ abilities and see if they’ll fit your company culture. In addition, perform thorough reference checks.
- Lack of franchisor support
Some franchisees fail because the franchisor isn’t supportive. This usually happens when the franchisor grows the network too quickly and doesn’t build up an adequate support network. When this happens the entire network may suffer as the franchisor is too stretched to support marketing activities or make sure quality is consistent.
When you buy a franchise, you’re putting a lot of money on the line. Your success doesn’t entirely depend on you alone. This is why it’s critical that you ensure that you’re confident that the franchisor will provide adequate support. Speak to the franchisor and other franchisees to find out what type of support you’ll get.
Here are some questions that you may want to ask:
- How often will the franchise support staff visit me?
- What does your initial training programme cover and how long is it?
- What ongoing training do you offer?
- How comprehensive is your operations manual?
If you’re an existing franchisee and believe you’re not getting the support, communicate with your franchisor. You have a right to hold the franchisor accountable for support and demand the level of support you were promised. You may find that the franchisor wasn’t aware that he/she isn’t giving you sufficient support. Remember, royalty fees contribute to franchisor support.
Don’t let your business fail
Even though investing in a business with processes in place and a reputable brand name lessens the chance of business failure, it can still happen. Don’t trip up on these common pitfalls. Now that you know the reasons franchisees fail, don’t fall into the same trap. The franchise sector is key to future economic growth and can also reward you handsomely.
For more reasons franchisees fail, franchise information, advice and franchising opportunities in South Africa, get in touch with franchise experts at whichfranchise.co.za.