Challenges you will face in franchise business
Franchise business is well organized, tested and straightforward than startups. Operating a franchise business is a dream of some entrepreneurs but this successful and thriving business has to face challenges during its franchise journey.
Even having well established brands and a proven marketing system, it’s not an easy way because of the increasingly competitive race. More competition means more challenges in making a franchise a success.
Long Approval Format: one of the challenges you will face in the beginning of the franchise business is long approval processes. When it comes to franchising, franchisor’s take time in franchise approval, franchisees take a lot of time in selecting who is the best fit for franchise. Time period varies from franchise to franchise, somewhere it takes 90 days and somewhere more than this. Some franchise take third party route in its approval process, but maximum franchisees follow below mentioned procedure during its approval processes.
- Initial Introduction
- Introductory Call
- FDD Review
- Second Call
- Due Diligence
- Discovery Day
- Sign Agreement
Higher Operating Cost: higher Operating cost is also a challenge you will face in the franchise business. Usually franchisees demand a high investment range for setting the franchise business. Operating costs also vary according to standard and non-standard locations. There are many types of costs and fees like
- Initial Franchise Fee
- Total Investment
- Cash Requirement
- Net Worth Requirement
- Royalty Fee
- Ad Royalty Fee
Franchise fee and startup costs shoot up to million dollars in the case of many famous franchises like Subway, KFC, McDonalds, Taco Bell, Wendy’s and more. Moreover franchisees need hundreds of thousands dollars of liquid assets which makes operating costs much higher.
Expenditure types that a franchise demands in order to set up a franchise business are as follows
- Planning, Development and Design Costs.
- Construction Costs.
- Training and travel expenses.
- Professional and License Fees.
- Security Deposits.
- Additional funds.
Less Brand Control: brand control is a business craft and if you have less control over the brand everything starts messing up, mistakes by one location of a brand, its impact can be seen on its every location. Franchisees struggle to keep brand control constant which results in the negative impact on the recognition power. Less control over brand leads to struggling of the franchise. Customers stop flowing through your door and lose trust in the franchise which eventually leads to the disruption of the brand or company. Less control over the brand arises following challenges for the franchise.
- Customers will turn away from the franchise.
- Unprofessional branding.
- No strict ground rules will arise quality problems.
Lack of Decision Making Power: in many cases franchise owners lack the power of making decisions this leads to business management problems. With the passage of time franchisor’s change ideas and products for business promotion but certain franchisees fail to adapt with new circumstances. All these changes are made according to trends which eventually leads to more profit generation and revenue but franchisees feel frustrated with such filtrations. Franchisees can’t make decisions in such tricky situations and their business stops to show improvement. This lack of decision making power arise following challenges for a franchise
- End of partnership between franchisors and franchisees.
- Business failure.
- Less control over business.
- Difference in understanding.
- Mutual respect problems.
Infrastructure Problem: Another challenge you will face in franchise business is an unstable infrastructure problem. Many franchisees find it challenging to build a solid infrastructure because all this takes more effort and is time consuming. Some franchisees don’t have much patience in building great structures that are quite hard working and hectic.
Rules & Regulations
There are different rules in different cities for franchising business. In major cities businesses face a set of rules like in the case of New York, San Francisco, or Chicago. Laws like Fair Workweek laws and many other laws are imposed on franchisees with a number of locations and employees worldwide.
These laws and regulations need franchise information updates every weekend which leads to more workload and confusion. Because of this, franchise management system changes and as well as employment scheduling changes. Franchisees need to share franchise schedules in advance this creates confusion in operating a franchise business.
High Employee Turnover: high replacement of employees is also a challenge you will face in franchise business. Turnover rate highly impacts a company, turnover rate is based on how happy your employees are. Employee turnover are of two types voluntary and involuntary which eventually leads to replacement of employees with new ones. A franchise spends a lot of money to recruit employees and if there is a high employee turnover meaning they have to spend more money and resources in training new employees. Following are the causes of high employee turnover
- Better compensation and other packages.
- Working remotely or from home.
- Less exciting opportunities.
- Negative franchise environment.
- Lack of communication.
- Lack of support and company culture.
- Less employee Benefits.
Since every worker needs a friendly environment to work, and if they stop finding exciting opportunities and a good environment they will eventually leave the franchise. Employees work more when they are facilitated with a handsome salary and if they find better compensation and other perks they will choose the better option. Once employees will start realizing that they are getting less benefits they will leave the workplace and will join another appealing franchise.
Strong Business Team: for a franchise to work successfully needs a solid business building team. In order to gain long-term results in a business a franchise should have a strong business staff and result orient team.
Franchisees should work on how to make their team members happy and focused. Building a strong team is also a challenge you will face in the franchise business so keep your team members motivated.
Complex exit strategy: entrepreneurs sometimes come up with exit plans because of many different factors, like business failure, complex business and operational problems. If your financial situation is not good because you are not able to minimize losses, the best option is to exit but a complex exit strategy is holding you back. This is also a challenge you will face in the franchise business.
Franchisees are facing many challenges in franchise business, the above mentioned are some main challenges that franchisees face during franchising. There are many ways to solve this problem. Franchisors should keep in view the expectations of the franchisees and should communicate with them from time to time. They should provide franchisees support and should maximize benefits in order to get hold of these challenges.
Frequently Asked Questions(FAQ's)
Long approval takes a lot of time and because of this many entrepreneurs lose interest in a franchise.
Yes, operating costs vary depending on traditional and non-traditional locations.
The reasons behind less control over the brand are Inconsistency, unprofessional branding, customer turn away, no strict ground rules and much more.
There are many factors behind high employee turnover like better compensation and other packages, Lack of communication, Lack of support and company culture, Less employee Benefits and much more.
Infrastructure problems arise because it demands more time and patience so franchisees find it challenging.