Five Reasons Franchises Fail

The Small Business Administration (SBA) reported that 30 percent of independent, non-franchise companies fail during their first year. Conversely, the U.S. Department of Consumer Affairs reported that less than 5 percent of franchises fail. Yet, some do fail. The reason(s) for failure could be a number of factors, most of which could have been prevented by due diligence during the early phase.

1. The idea. Whether you are franchising your own company or buying into a franchise system, how the concept is received by the community is critical. While hamburgers seem to have universal appeal not all food chains meet with majority approval. Also, if your business model is complicated, you are in for a struggle. You want to create an operational standard that can be taught to and replicated by any businessperson. A company may be successful when run by the entrepreneur who dreamed up the concept; however, if the business model or prototype is not easily duplicated, the chances for success are not so certain.

2. Bad location. Ask seasoned franchisees to name one of the most important keys to a successful franchise and undoubtedly they will say, "Location, location, location." Even with a well-branded name, if you are off the beaten path, inconveniently located, or in an isolated area the opportunity to be as lucrative as possible diminishes.

3. Poor marketing/advertising. Many well-established and reputable franchisors have marketing and advertising funds into which franchisees contribute monetarily. Chains like McDonald's and Subway have national campaigns, while other types of franchises may advertise on a local level. Some franchise concepts require a lot of legwork on behalf of the franchisee. Depending on the business you chose, you may have to solicit your own clients, as in technical and computer support franchises. If you are considering a concept that requires outside sales skills and you lack them, you may want to rethink your choice.

4. Competition. There are approximately 160,000 franchises in operation in the U.S. That means a lot of competition. If your market is already saturated with a concept, you may want to consider something that still is popular but not yet tapped out. Medical spas and restaurants offering healthful choices are gaining ground among the public but there is abundant room on the business owner side.

5. Unrealistic expectations. New franchisees are notorious for having very high expectations for their businesses. It may take 2-3 years before you see a profit and if you don't plan for that, you may sink before you have a chance to swim.

A word to the wise: If you don't like people, you should not buy a franchise. If you want to make it, you have to put in long hours and work with all kinds of personalities. It's an undeniable fact that some people are more difficult to interact with than others. As a business owner you need to be able to interact well with people from all walks of life. The ability to manage employees also is essential to the success of your business.

From: http://www.allbusiness.com/buying-exiting-businesses/franchising-franchises/2204-1.html