Troubles that Happen in Franchise Businesses and How to Avoid Them
1. Troubles that happen around the period of you joining the franchise.
Troubles happen a lot especially around the period when you first joining the franchise. We cannot deny that it is because sometimes you may lack of knowledge of franchise business. Also, those reasons varied, sometimes the franchiser will take responsibility, and sometimes the owners have to take responsibility. Here, you will learn the typical cases.
1-1. When you are forcibly persuaded to join by franchisers.
If you don’t compare and examine enough when you make franchise contracts, you will be in trouble. The franchiser tends to explain only advantages of starting a business and they don’t give you enough explanation of its disadvantages, because they want to increase the number of stores and expand their brand.
In order to not have a huge gap between your expectations and reality, you need to ask enough questions to them about any doubts you may have.
To be a franchisee is to be an independent manager. It is very important to make efforts to search and realize that you are responsible for a business. Also, you need to remember that it is essential to have a reliable relationship with the franchise headquarters.
1-2. When your franchise store sales don’t increase as much than you thought.
The most important point to continue a business is the sales amount. Owners tend to be in trouble with the sales amount especially right after they start their store. Sometimes there is a huge gap between the sales estimation and the actual sales amount.
If this gap is too big, it could be difficult to continue your business. There are many reasons this could happen, for example, “Accuracy of the sales estimation was poor”, “There was not enough support from the franchiser”, or “it lacked of plan to gain customers”.
1-3. Flexibility of running a franchise store
Flexibility of running a franchise store tends to be a problem in franchise business. Franchise owners are independent managers. However, they are responsible for maintaining the brand’s service by using it’s the franchise’s business style because they made contracts with the franchise, so they do not have 100% liberty when they run franchise stores. Especially, when they don’t confirm manuals very well, the tendency for the occurrence of troubles will increase. You need to make sure about the things that you can and you cannot do by carefully reviewing manuals given by the franchise.
For example, there is a case about the marketing of products and the selling price. In this case a franchise headquarters and one of its member stores were in trouble because of the prices of products that were going to out of thier shelf lives.
Sometime owners are in trouble with franchiser because of treatment of wastes especially if they are in food industry.
You need to be able to understand contracts and understand your limits of freedom and make a good decision as an owner
1-4. When you cannot open your store even though you have paid the affiliation fee.
Sometimes you cannot open your store even though you have paid the affiliation fee. This is one of the most serious issues occurring in the franchise business. Mainly, it happens when you cannot find property or prepare needed infrastructures. Sometimes it is the franchise headquarters fault, but sometimes not. The reasons vary.
The owners cannot do anything if they cannot open their store. In those cases, their lives then become under pressure, and become mentally stressed. And there could also be a trouble with franchiser.
2. Troubles that happen when you run your store
Even though you overcame the beginning period of your store management, the possibility of failure of your business still remains. Sometimes trouble can occur out of the blue, so you need to always be prepared.
2-1. Penalties and compensation damages from the franchiser
Sometimes troubles in franchise businesses occur in the contracts. For example, you have to end your franchise business for some reasons during the contract period. The reasons might be something like, “decrease of sales amount”, “break down of reliable relationship with the franchiser”, or for health reasons and other private reasons.
However, sometimes you will have to pay penalty for cancellation of the contract for those reasons. You should check when you have to pay penalty before you cancel it.
Also, recently there are increasing cases that some brands lose trust because of some employees’ actions. In the worst case, these employees may request compensation damages because of brand defamation.
Especially, in the current “Social Networking Era”, sometimes videos or photos that are uploaded by part time job workers for fun, or by customers who felt there was some kind of problem with your store can be shared at an intense speed. Once they spread out on the Internet, it is impossible to eliminate the content. You need to be aware of these potential risks, and do thorough risk management and manage your employees.
3. Troubles that happen after the end of contract periods with the franchiser
You must not think that you will have zero problems after the end of the contract. Some troubles can occur even after the contract ends.
3-1. Non- compete clause and confidentiality
During a franchise contract period, you have some restrictions for doing business. You might think that these restrictions will disappear and you can do whatever you want after the contract ends. However, this is wrong. The franchise business is a business model that lets people do business by providing the information and help. It would be troublesome for franchisers if people were to do business freely using the private company information that they gave. To avoid these situations, confidentiality must be established.
A non-compete clause, is one of the most important rules of franchise business. It protects the existence of a brand. Because of that you will be restricted to be an independent as a rival company.
If you have a future vision, you must check what is a competitive business for them. Don’t forget that you will be responsible to confidentiality about all of the information you got by joining the franchise.
You should now see that there are a lot of possibilities that some troubles occur in many contexts. The best ways to avoid them are to understand the contents of your contract deeply, to make accurate plans, and to think about what kind of problems could appear. Still, it is difficult to know them actually. That’s why it is important to ask some franchise specialists, and people who already have/had joined the franchiser. In addition, you need to learn and prepare to how to deal with problems, including Social Networking problems.