Bottomline: the popular saying is equally true about franchise businesses too: look before you leap!
7 risks of a franchise based business to look out for
- Hyper Optimism: Optimism is good for your business, unless it crosses the limit. Are you over-assuming the number of franchisees to recruit? Does your business have that much popularity to be franchised in the first place? This is easy to say to say but hard to practise, because only you can figure out when you cross the limit of optimism about your franchise business.
- Complex Business Model: A complex business model is not an ideal venture for franchising. Any franchise business should have a very simple business model, because to put it in plain language, you must create interest among other people about your business as well as make them understand how to run the show and make profits.
- Under estimate of cost: Your cost is always going to exceed your paperworks. Prepare for it. Estimating your franchising budget on paper is one thing, implementing it and running the show is another. Your expenses may rise, and your profits may go down. Situations may compel you to reconsider franchise or royalty fees. Bottom line, things are volatile, and you should be ready to withstand them. A stable franchise based business model should still run smoothly even if half of its franchise units shut down.
- Ignoring Education: Running a good franchise business is not a cakewalk. A good franchisor has his or her skill sets, experience, theoretical knowledges, and practical experiences. Even in the franchise business, a good education is the best possible investment. We suggest you to visit our Franchise Classroom section where you can know about the best Franchise business books, keep track of latest franchise news 24×7, and read franchise business articles.
- Ignoring Franchise Experts & Professionals: This is a very common mistake of starting franchise businesses and may poise great risks. Franchise business experts and professionals are there for a reason, and they should not be ignored. People are often penny wise but pound fullish in this matter. They try to save a few bucks on franchise experts and ultimately make wrong decisions and lose more money. A good franchise business consultancy, on the other hand, can pay long lasting benefits. Do listen to franchise consultants and experts, we repeat!
- Ignoring Hard Work: Franchising your business does not mean end of all the hard works you have put to establish your business in the first place. I would even go on to say that franchising your business means even more hard work to come!
And here comes the deadliest risk of franchise business.
You spend all your money to develop your franchise business, but it does not succeed.
Why, you might ask, is this a special risk for franchise business? The risk of a bad investment not giving profit is always there in any business, let apart franchising. True. Nevertheless, in a franchise business, the set-up costs are usually higher than normal business ventures, which makes an eventual loss even greater.
Remember: Good investors chase profit. Great investors minimize risks.