Teething Problems Faced by New Franchisees

ActionCOACH founder and CEO Brad Sugars shows how by avoiding certain common mistakes, first-time franchisees can enjoy a successful and rewarding enterprise.
 
July 1, 2009 - PRLog -- Starting a new franchise involves a steep learning curve. In the initial days of setting up a brand new franchise, profits tend to be lower –in relation to the elevated risk faced by business owners. Add to this, the intensive systems training –and the business owner feels overwhelmed and exhausted even before starting out.

According to ActionCOACH founder and CEO Brad Sugars, under such high-pressure circumstances, the support provided by an established franchisor can make the difference between success and failure.

“While a franchise provides franchisees with proven systems and tools to ensure success, the initial stage of building a franchise is overwhelming for most people. Immediately after signing the paperwork, franchisees often go into training, which with any good system is intensive –often grueling,” Sugars said. “At this point, the backing and support of a solid franchisor can get the franchisees off to a great start.”

Launching a new franchise involves substantial costs for both the franchisor and the franchisee. The level of vulnerability is higher, the turnaround lower and start up costs higher. To make matters worse, any mistakes or false assumptions made by the franchisee can only lead to more trouble.

Sugars outlines the biggest blunders franchisees make and advises against the following misconceptions to increase the franchisees’ chances of business success:

1.   Lack of understanding of the franchisor-franchisee relationship: Many people fail to completely understand the franchise model. They are often not clear about the franchisor-franchisee relationship. Sugars likens this relationship to a marriage.  “An understanding of this relationship is paramount for the success of a franchise system.

2.   Inability to follow the systems: The success of a franchisee largely depends upon following the proven system of the franchisor. In most franchises, there is not much scope of making alteration to the systems, even if you think they are better. Most first-time franchisees struggle with strictly adhering to the procedures and guidelines stipulated by the franchise system.

3.   Unrealistically high income expectations: In the initial stages of setting up a franchise, the risk and costs are much higher when compared to the profitability and turnover. Many franchisees believe they will begin generating great profits from day one as a result of the franchise system –however, this is seldom true.

4.   Selecting an inappropriate franchise opportunity: Many franchisees tend to base their decision solely on the profitability and popularity of the franchisor. The success of franchisees often depends upon whether the franchise is a good fit for them. “It is critical to make sure the business is viable at the time and place the franchisee will be operating it and that they have the knowledge and passion for the industry or line of business they are in,” Sugars says.

5.   Wrong mentality: Blaming the franchisor for every little business problem encountered does not help anyone. At ActionCOACH, Sugars has laid out “14 Points of Culture” and the entire franchise community follows these points of culture. “Blaming others and not taking responsibility for your own actions can set anyone up for failure,” Sugars says. “In a franchise system, it becomes easy to blame the system or the franchisor and this mentality should be discouraged as it is unhealthy for the business.”

6.   Unrealistic business ownership expectations –Most prospective franchisees enter the franchise relationship with little idea about business ownership. They can only imagine a day in the life of a typical business owner. They join a franchise thinking they have entered into partnership with a supportive, mature, established business partner –not realizing they would still be responsible for the day-to-day management of their company.

7.   Failure to research the franchise: Sometimes, franchisees get so caught up in the excitement of diving into a new business opportunity that they overlook the research process. Sugars cautions franchisees and encourages them to do some serious number crunching, interview existing franchisees, weigh the pros and cons and carry out extensive research at a local level to see if the product or service has enough demand in their area. It is also worth looking into the long-term viability of the opportunity.

8.   Unsuitable location. It is a fallacy to assume that if a business is doing well in one geographic location; it will also do well in another location when run on the same system. It is crucial to determine if the given product or service will do well in the location you have selected.

9.   Lack of working capital. It is important to be forewarned that additional expenses –not listed in the FDD may come up at any time. “It is crucial to have enough working capital to fund the business in the event of these expenses and costs. It is always a good idea to have another source of income to cover personal expenses, say your spouse’s income,” Sugars says.

10.   Neglect of marketing and advertising activities. Many first-time franchisees ignore marketing and advertising related activities to promote their business. They get so bogged down by the day-to-day operations that they ignore these functions. Many franchisees also falsely assume that all the marketing activity will be carried out by the franchisor and their lack of marketing activity can result in their downfall.

11.   Incompetent team. Many people do not understand the importance of a great team. Most first-time franchisees assume the systems will take care of the business and the quality of team will not matter much. Even if the franchisee decides on being on-site every hour –which in the real world is not realistic –they still need a group of dedicated, honest and reliable people to help run the business effectively. This is one of the biggest challenges faced by a business owner and can largely determine the ultimate success of a franchise unit.

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ActionCOACH is the world’s number one business coaching and executive coaching firm, with more than 1,000 offices in 26 countries. To learn more, go to actioncoach.com
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