Common Pitfalls in Franchising Business And How to Avoid Them

You are currently viewing Common Pitfalls in Franchising Business And How to Avoid Them

Franchising is possibly the best form of business when it comes to owning a business. Given its basic structure and the fact that the business comes with a fool-proof business module is a little more assuring. The business owner can expect a great pick up of the business after a few months of operations. The franchisee reaps the benefits of owning a business without actually doing the groundwork for getting started with the business, to begin with. However simple this might seem, the back story to owning a franchise business comes includes the hardships of putting together a business from scratch. Hence this comes with rewards and risks. Acknowledging the common pitfalls in the franchise business and how to avoid them, is what we are going to focus on in this article.

Knowing about the risks related to franchising, entrepreneurs or potential franchisees seek the expertise of franchise consultants. Although reaching out to a consultant is major to help you with the franchise buying process, as a future business owner, you need to understand the risks and rewards involved in the business. 

  • Franchising seeks Cash flow- For starting your own business, you would need to prepare a budget with the expected expenses. You might end up using all your resources at one go just to kick-start your business. Then you may or may not have a system for regular cash flow. However, if you are keen on buying a franchise or becoming a part of the franchise system, the franchise requires you to have a certain specified number in terms of investment capacity. This is done by viewing the costs of starting he business and the regular operations with the aim of starting earning profits within a short period of time. For franchises of higher stature- having a national or global presence, the franchise investment is much higher, and given said that, the operations cost and minimum cash balance that these franchises look for with the franchisees is much higher than the others.
  • Franchise Agreement- In the system of franchises, there are some ground rules. Everything is regulated by the franchisors and the of course the regulatory laws of the state where the franchise is present. The franchisee needs to abide by the basic fundamental rules laid out by the franchisor in the form of the franchise agreement. This acts as a savior to the franchisee since there is documentation of the processes done to the maximum capacity of the franchisor. 
  • Regulations, Operations, and Management- Franchising is subjected to several regulations. Being a part of such a regulated industry, you too need to obey all the franchising laws before and after buying the franchise. So, there are high chances an owner will land into trouble with lawsuits if they fail to comply with any regulation.
  • Reselling Franchise- In case your franchise business does not turn out to be profitable, selling the franchise is the best available option then. Although, selling a franchise is easier said than done. It requires thoughtful processing which includes preparing the financial disclosure document.


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