Failure Is Not an Option: 4 Reasons Franchises Flop and How to Prevent Them

By Nabiha Balala

Franchise Operations

When people hear the term “franchise,” they usually associate it with the large and successful brands they’re familiar with – the ones that vary from food and beverage all the way to auto care and can be found in just about any town across the country.

The reality is, people never hear about many franchises because they often fail before establishing a large enough presence to be noticed. But the right processes and evaluation can multiply your chances of franchise success.

We have weighed the many reasons a franchise can fail and have identified four of the big ones:

  • Toxic franchisees
  • Litigation and compliance issues
  • Inconsistent experiences
  • Inconsistent royalties.

Here’s more on those four issues, including ways to prevent them.

Toxic franchisees
This type of franchisee is every franchisor’s nightmare. Not only can this individual bring down the quality of the brand, but he or she can also set a bad example that other owners may copy.

Toxic franchisees can be identified in many ways, including inconsistency in the quality provided to customers, improper customer service, less than “A” level cleanliness and more. Luckily, as a franchisor, you have other ways to recognize a toxic franchisee even before most others can spot a problem.

For example, using your lead generation solution, you can set up your specific standards in the lead qualification center of your software tool. That way, you will be able to weed out less than desirable leads before having them proceed further into the application process.

Using a central operations management solution, a franchisor also can note certain red flags within an account. You can keep an eye on a specific location’s support ticketing requests, identify whether the owner is a problem, and halt any requests for additional locations from this individual.

You can also see if this location just needs help. Maybe the team received poor initial training. Through the proper use of a central operations management solution, the franchisor can assess the situation and conclude whether or not a location simply needs more training or if it indeed needs to be evaluated as a whole.

Litigation and compliance issues
Sometimes, a franchisor gets stuck in a nasty battle with a franchisee over something that could have been prevented from the get-go. Use the legal portion of a central operations management solution to make sure that doesn’t happen.

Always have processes in place so you can be certain that franchisees are within contract. Make sure everyone is in compliance, and that renewals are signed and delivered before the contract is up. Also, make sure that your franchisees are fully trained and supported from your end.

Inconsistent experiences
Inconsistent experiences are the bane of a franchise and the cause of many problems in the franchisor-franchisee relationship. However, owners can use a variety of technology solutions to tackle those problems – or avoid them in the first place.

A central operations management solution provides a consistent structure and brand requirements to all end users. A brand standards/field audit solution allows locations to be sure that everything they are providing is exactly as required. Also, they offer location owners the ability to self-audit so they can identify any missing items or issues on their own, before they become a problem. Lastly, an online training solution will help make operations at all locations uniform, so a burger joint in Miami is exactly the same in quality, service and style as a burger joint in Boise.

Inconsistent royalties
Another inconsistency that can result in the failure of a franchise: inconsistent royalties. Perhaps, as a franchisor, you aren’t getting paid your royalty fees on time – maybe not from just one, but a number of franchisees. That can hurt you financially, particularly if you are in immediate need of those fees. And perhaps franchises are self-reporting sales, and you’re wondering how accurate they might be.

Figure out those trends before they hurt your business. The first time you aren’t paid on time is enough for you to go in and make sure that sales numbers are indeed matching reporting and analytics within your database. Those are measures you can appropriately and rightfully take as a franchisor to ensure that you are being paid accurately and on schedule.

There are other reasons that a franchise brand can fail, but those four are the ones that are large enough threats that even one of them can break you. Thankfully, franchisors do have several ways to identify those issues before they actually make a difference to a brand. All are preventable and all are fixable even if you don’t nip them in the bud. Stay ahead of all your processes and deadlines, and you won’t have to worry about a franchise failure. Instead, you’ll equip yourself to find franchise success!

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Tags: Franchise Operations Management