For many franchise owners, finally opening the doors to their new franchise is a milestone event. However, many get caught up in the excitement and initial flurry of setting-up without sparing any thought to what could go wrong.
And while the franchisor will in most instances be there to assist you should you find yourself in unchartered territory, it’s also advisable to have your own back-up plan and the right support in place to ensure you are able to navigate your way out of any unforeseen circumstances.
Related: Start With the End in Mind
Below are some of the common challenges franchisees may face from time to time, together with tips and advice to assist you in finding your way out of extremely difficult situations.
Common challenges faced by new franchise owners
- Sales are far lower than expected, resulting in a longer period of losses. It is here that you will need to up your marketing activity by opting to market extensively but also prudently to ensure maximum impact.
- Expenses within the business are far higher than expected or there are emergency unforeseen expenses. In this situation you will need to cut down on costs wherever possible, and make arrangements to pay suppliers over a mutually agreed period. It may also be necessary for you to use your reserve capital to fund these losses or unforeseen expenses.
- Cash flow problems start emerging due to a lack of terms with suppliers, and debtors who do not pay cash or timeously. You will need to try to negotiate terms with suppliers wherever possible, or make use of your company credit card to buy small inventory items.
- Drawing too much out of the business before it has reached break-even. Only draw as per your original business plan projections and use the reserve capital to live on until the business has either broken even or is profitable and cash flow positive.
Mistakes to avoid when responding to a crises or challenges
- Never panic and make emotional, irrational decisions on your own. Rather consult with experts and mentors who can advise you more objectively.
- Do not try to sort out the problem on your own as you will probably have a subjective view on the situation. Get help or advice from an expert accountant, attorney, consultant, mentor, financier or someone who is an expert in your industry and then institute remedial or withdrawal actions swiftly. Speed is of the essence as time, resources and money are normally
How to determine whether your franchise is worth saving or whether it’s time to close shop
Some of the best indicators to close shop are normally some, all or many of the following:
- Despite all your best marketing efforts, turnover remains consistently low or decreases each year.
- The business remains consistently non-profitable due to high overhead expenses.
- You are convinced that the location is not good and are unable to either get out of the lease agreement or have inadequate funds to relocate the business.
- The annual rental lease escalation is too high and places the business in jeopardy.
- The franchisor provides inadequate operational and marketing support and cannot or will not assist you with a meaningful turnaround strategy.
- The financier is unwilling or unable to assist you with a loan repayment moratorium to turn the business around.
- You have tried everything in your power to turn the business around and it is not working. You are not convinced that lending or pumping additional money or effort into the business will yield the desired turnaround results.
It is time to consider liquidating the business and possibly applying to sequestrate yourself.
Related: Franchising Your Business in 5 Steps
Remember, no business is ever without its own challenges, however it is most often how you respond to those challenges that ultimately determines success or failure.