Buyer Blunders

The five biggest franchisee mistakes that lead to failure – and how to avoid them.


Buyer Blunders

Virtually all the business media have been guilty of glamorising the positive side of owning a franchise. Unfortunately, the negative aspects are sometimes either glossed over or simply ignored. As a result, many people go into business with blinders on, and end up well on their way to failure before they’ve even begun.

There are many common misconceptions that may ultimately lead to business failure. For starters, most people are used to working an 8-to-5 job, with a ‘boss’ directing them. When you’re in business for yourself, you must have the discipline to work independently. You can never say “Gee, I don’t have anything scheduled this morning, so I’ll sleep in.” You must maintain the same work schedule or the same number of hours virtually every day.

If you don’t have anything scheduled, you should read educational materials to further your business knowledge and capabilities.

In addition, prospective franchisees who come from a corporate background may be used to putting in their eight hours, then putting their work behind them. Many people actually assume that when they own their own business, they’ll be able to work less and take more time off for recreation.

Unfortunately, the opposite is true. When you run your own business, you usually have to work more hours, not fewer. You have to be willing to put in long hours and, if necessary, work weekends as well. This is especially true in the start-up stage. Here are some tips for franchisees:

Blunder #1: Inadequate Financing
A considerable number of people have unrealistic expectations when it comes to the funds needed to start a business. Prospective franchisees often lack the necessary start-up funds and can’t come up with adequate financing. Furthermore, a considerable number of them have virtually no cash or liquid assets. In this case, many expect either a bank or the franchise firm to provide 100% financing.

In most instances, finance organisations will not provide someone with financing unless that person is investing a significant portion of his or her own funds, boasts a good credit record and has the means to pay back the loan. If someone has no cash at all, it usually reflects poorly on his or her ability to manage finances.

Blunder #2: Lack Of Planning
Another fact rarely considered is that the majority of new businesses fail within a few years. In most cases, business failures are due simply to poor planning or no planning at all. Most people who go into business enter a field related to their current employment or a favourite hobby. They don’t do a market study first to see whether the demand for their product or service is growing, declining or stagnating.

They also fail to allot the proper time for administrative tasks. Most new business owners assume that most of their time will be spent producing and marketing their product or service. Unfortunately, this isn’t the case. An inordinate amount of time is spent on administration – talking on the phone, purchasing supplies and equipment, filling out government forms, and taking care of other mundane duties.

Blunder #3: Unrealistic Expectations
Many individuals assume not only that most businesses succeed, but that they’re lucrative from the get-go. This is definitely not the case. It usually takes at least a year to develop a
profitable business.

As a general rule, we recommend a first-year goal of earning back your investment. Even then, the money has to be reinvested in the business. In other words, in your first year, you should have other sources of income to live on.

Blunder #4: Inability To Commit
Even though most people would like to start their own business, only a small percentage actually do it. When push comes to shove, most lack the self-confidence to make a decision and act on it. We tell people in this position that in order for their businesses to succeed, they must be able to gather information, weigh the facts and then make a prompt decision.

Blunder #5: Unwillingness To Take Responsibility
A business owner is 100% responsible for his or her mistakes. There’s always a risk of a business failure or less-than-expected financial return. If that should happen to you, you can’t blame it on someone else.

Getting Ready

Those who can overcome these obstacles are ideal candidates for business ownership. Many of these qualified people don’t make the attempt, however, because they’re (understandably) unwilling to give up the security and benefits of their full-time jobs.

My personal recommendation is this: Unless you’re currently without a job, you should start a business that can be operated on a part-time basis. Once the business has proved itself and you’ve made a little money, you can convert it into a full-time operation and quit your job. Not only are the financial risks considerably less, but this allows you to see whether you fit the entrepreneurial mould.

Finally, I’ve found that the single most important factor by far, in determining who succeeds and who doesn’t is simply the amount of effort exerted. If you aren’t ready and willing to work – and work hard – franchising is probably not for you.

Franchise Zone
About the Author
Franchise Zone is published by Entrepreneur Media SA. It offers advice and franchising opportunities in South Africa.

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