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Research Center & FAQ |
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CNN Interview - Building Franchise Success
Franchising opportunities provide brand recognition, management and administrative systems and a proven business model to small business owners. In theory, this should result in franchises having higher success rates than non-franchise business opportunities. But in practice, franchises can and do fail.
In a recent interview aired on CNN, Franchise.com President Nancy Ghanem gave her recommendations on franchise success and gauging realistic financial projections.
Ghanem believes franchises fail primarily because franchise owners do not adequately research franchise opportunities prior to purchase and they do not match personal attributes and interests to activities associated with the presented business opportunity.
Ghanem believes franchises primarily fail for the following reasons:
- Franchisee failing to do necessary research on the franchisor
- Not knowing how to research the franchise opportunity
- Franchise system itself
- Franchisee not being in the right franchise type
- Franchisees not knowing in advance he/she should not even own a franchise or perhaps any business
To paraphrase the Jim Collins, the author of the popular business book "Good To Great" and his "yellow school bus" analogy failure in franchising occurs if franchisee:
- Gets on the wrong bus
- Sits down in the wrong franchise seat on the bus
- Gets on the bus and should instead have gotten on an airplane
An example of this theory is when a franchisee buys a restaurant franchise but does not like dealing with people and employees.
This mismatch may be amplified if this same franchisee prefers working at home.
Before considering to buy a franchise a person should determine:
- Annual income they require in order to provide a secure and comfortable living.
- What financial resources which can safely be put forth
- How long he/she can go without meeting their annual income requirements
- If even financially qualified to consider any franchise purchase
- Determine their tolerance for taking financial risks
- Thereafter begin researching and seeking out franchises ? match franchises to your financial capabilities and risk tolerance.
- Check your credit report and clean-it-up if necessary.
- Request information about franchises online or at trade shows.
- If your request is not answered within a week eliminate that franchise from consideration. This may be a patter indicating that franchisor will not follow up well AFTER you are a franchisee needing assistance.
- Obtain copy of franchisor?s disclosure document ? known as a UFOC
- Study it closely confirming if there is an Earnings Claim.
- Review UFOC Item 20 which lists all franchisees in system
- Try to speak with newer franchisees in system and ask questions
- How long have you been in business?
- How are you doing?
- Is your volume of business growing?
- Pleased with earnings?
- Earnings matching earnings (if UFOC contains earnings claim)
- Ask franchisee to share some of their costs
- Rent
- Inventory
- Labor
- Advertising
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