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Poor
Location:
For retail
franchise businesses it’s all about location, location,
location. In my opinion a marginal location with poor
visibility and low organic traffic can often be an
impossible obstacle to overcome when launching a new retail
franchise business. Before signing any retail lease for a
franchise location make sure you thoroughly investigate the
organic traffic potential of the site including soliciting
the opinions of other business owners in the immediate area.
Incompetent
Ownership & Unrealistic Expectations:
Many new
franchise businesses never stand a chance of surviving
because the owner is just not capable of following the basic
franchise system, or is unwilling to put in the hard work
and make the necessary sacrifices required to succeed.
Unfortunately as a small Business Broker I see this scenario
arise all the time in the form of a phone call from a new
franchise owner that wants to sell 6 months after opening.
Many of these owners reveal that operating a franchise is
not what they expected or it’s just too much hard work. In
lot of these cases I believe the Franchiser probably never
should have awarded a franchise license to some of these
candidates in the first place. But at the end of the day
it’s the responsibility of the franchisee to make sure they
fully understand the commitment and hard work that’s
required to succeed in today’s marketplace.
Brutal
Competition:
Many new
franchise businesses face overwhelming competitive forces
from similar franchise concepts and independent businesses
already entrenched in their target market. In some cases
this includes competition from other fellow franchisees who
have been allowed by the franchiser to open other locations
in a relatively small market area. In short, it’s my opinion
that many major metro markets are completely oversaturated
with certain types of franchising concepts making it
sometimes extremely difficult for new franchise owners to
make a living and ultimately succeed.
Franchise
Fad:
Inevitably
there are going to certain hot franchising concepts that
emerge in the market place that are ultimately going to
fizzle out as a fad. Remember the meal preparation franchise
craze? Maybe because I’m a guy, but I never thought this was
a very compelling or strong franchising concept to begin
with. But regardless of what I thought, it appears that the
vast majority of meal preparation franchises that opened
between 2002 and 2008 (under several different franchiser
flags) have closed their doors already with many franchisees
loosing hundreds of thousands of dollars in the process. The
moral of the story is just because a new franchise concept
is popular or hot doesn’t mean it’s a proven business model.
Under
Capitalization:
One of the
most common reasons I have found that a lot of franchise
businesses ultimately fail is they are simply don’t have
enough working capital to survive the initial start-up
phase. It’s a fairly well known franchising fact that the
majority of new franchise businesses are not able to show a
profit until there second year in business. This is why it’s
crucial to have adequate working capital in reserve to meet
your operating expenses until you can reach profitability.
Summary:
Please keep
in mind that all prospective business buyers should
thoroughly investigate any franchise or business, obtain all
appropriate disclosure documents available, and seek expert
consultation prior to making any investment decisions.
About
Author:
Ray Haiber
has 10 years experience as a professional
Arizona
Business Broker
and franchise consultant. Go here to view, research
franchises
for sale
throughout the
USA
including master and multi unit franchise opportunities.
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