Five mistakes new franchisors make

Franchising is one of the lowest cost and lowest risk ways to sustainably scale a business. Deciding to franchise is an exciting growth step for a business, which can lead some businesses to jump at the chance to franchise without putting much thought into the challenges that may arise when they do, setting new franchisors off on the wrong foot. Here are five common mistakes to avoid when franchising your business.

Attracting the wrong franchisees

A franchise’s success relies entirely on the quality of its franchisees. Even just one poor franchisee can be detrimental to a franchise’s reputation and can have a negative impact on franchisee retention. Franchisees should be carefully handpicked with more in mind than short term profitability. Franchisors should think about how franchisees will serve the franchise in the long run.

The best way to ensure that you acquire the right franchisees is to establish a comprehensive assessment process before deciding to work with anyone.

Hiring the wrong team

Hiring the wrong employees can be detrimental to any business. But for a franchise, the magnitude can be much greater. A poor franchising team can hinder the ability of each franchisee to conduct business activities effectively. This is why it’s critical for franchisors to prioritise hiring talent that will help the franchisees flourish. Specifically, hiring a great field management team should be a top priority for first-time franchisors. The field management team is responsible for supporting franchisees and giving them the guidance needed to help their business thrive. Without this vital team, a franchise can easily fall apart.

Not investing in the right systems

It is so important for franchisors to have the right franchising system in place from the get go. Often franchisors will acquire various systems throughout the initial stages of franchising in order to find the right one. In doing so they disperse their franchising data and much of it can get lost in the process. The best type of system for franchisors is an end-to-end system that can amalgamate data from all areas of the business. It should cover everything from the financials and reporting to sales and compliance. Having all your franchising information in the one place can help with operational efficiencies, allow for full transparency over franchisees and streamline the sales process.

Lacking the right knowledge

Although someone might be an expert in their field, expanding a business through franchising requires an entirely new way of thinking. Franchisors must oversee and ensure the smooth running of multiple businesses that, although fall under the same banner, may in fact be run completely differently to one another.

Before expanding your business through franchising, it is critical to research extensively and gain as much knowledge as possible on franchising and how to franchise sustainably and successfully. Undertaking training with the experts is a great place to start.

Underestimating the amount of capital needed

Franchising generally requires less capital than other forms of business expansion, which is why many new franchisors underestimate the amount of money needed in the beginning. Upfront costs including equipment, infrastructure and recruitment, and ongoing costs like operations, staff, systems and compliance can mean that franchisors could be running at a loss for the initial months or even years. In many cases, business owners will need several franchises in operation to start making any profit. Many aren’t prepared for this investment.

In order to overcome this challenge, new franchisors need to have a sufficient amount of capital to account for unexpected expenses and to ensure that the franchise can sustain itself.

Brendan Green, CEO, Hire A Hubby and MD, Franchise Cloud Solutions