Archive for June, 2013

It all seemed like such a good idea….

June 12, 2013

People buy franchises because they are persuaded, they will make money, they will improve their work/life balance and because they want to run their own business.

Two to three years on. How many franchisees feel that their original aspirations have been fulfilled?

I suspect if you carried out a survey; the answer would be relatively few. But then we are in the depths of the biggest downturn in 80 years. You would expect that many would be suffering. And so they are…

But why?  Franchisors go to great lengths to promote the viability of their franchise proposition. They will tell you that within two to three years you will be generating £x sales and £s profit. They will advise that they will support you all the way and will assist you in the marketing process throughout the lifetime of an agreement.  

Of course most franchisors do support their franchise network very effectively and with realistic projected levels of income sold to the prospective franchisee as part of the recruitment process. The anticipated levels of turnover and support are being achieved. But there are also some franchisors whose projections were maybe unrealistic and the support promised to help the franchisee through the myriad and complexities of actual day to day business is sadly missing. Franchisees who acquired a franchise from one of these franchisors could well find themselves in a bit of a mess.

But of course that is not the whole story. It is frequently the franchisee who gets it wrong…  How many franchisees’ start off with the best intentions and then over time decide that their way is the better way and deviate away from the proven franchise system?  We know there are many as that is what the franchisors tell us. One estimate (from a US based franchise consultant) put this at a third of every franchisors network. That is a third of every network attempting to buck the system, to find their own way of doing  things and of course many of those also attempt to avoid declaring all they have sold, with a view to avoid paying all their fees.

Can you imagine that happening at McDonalds? Control of your franchise network, as well as supporting and nurturing them is one of the biggest challenges that franchisors face. Many franchisors have good and effective controls in place to prevent a franchisee going off the rails, but some don’t and it is these franchisors who will have the biggest problems…

So who is to blame? There is no simple answer. It may be the franchisor who has failed in their obligation to support their franchisees. It may be that their sales projections were unrealistic, or that they are simply not paying enough attention to who is declaring what and why some franchises are just not performing as well as they should be. Moreover, it may be the franchisee who just feels they are cleverer than the franchisor; that they can buck the system or that they can make a little extra on the sly.

In both these cases, the franchisor is left to pick up the pieces…

 Chris Burton is the Principal Advisor at CBCS. (www.cbcservices.org) CBCS specialise in Franchise Auditing, Support and Franchisee financial training.

 

 

 

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