Franchises often have more staying power than independent businesses do. Given franchises’ proven concepts, sustained success, and high brand awareness, buying a franchise is often the most desirable investment opportunity for entrepreneurs.
It’s important to remember, though, that not all franchises are created equally. Most succeed, but some do fail. There are a multitude of conditions that can result in a franchise ending up on the wrong side of survival: a bad business model, inadequate training and support, poor management decisions, consumer trends, scandals, economic pressures, and having an outlet in the wrong place.
Think of all the high-profile franchises that have faced financial difficulties and even extinction— Blockbuster, Toys R Us, and Burger Chef are all famous chains that failed to weather the decades. Even among successful franchise chains, some fare better than others,as evidenced in the case of KFC shutting down all its stores in Zimbabwe and McDonalds withdrawing from Vietnam.
So, how do you know which franchise is going to give you steady sales and healthy returns? Read this article, written in partnership with F45, if you’re ready, willing, and able to buy your first or subsequent franchise business and are looking for tips and tricks.
An actively involved franchisor
Make sure that the franchisor has an active and engaged support system in place and doesn’t leave franchisees to fend for themselves. Support shouldn’t be limited to site selection and development, initial training, and recruiting. After guiding you through the startup phase, the franchisor should actively participate in ongoing onsite visits, new product development, supply chains, advertising, and quality control.
Demand for products and services
The most successful franchises survive because there is a continuous demand for their products or services. Even if the franchise does not fulfill a basic need, such as food or clothing, it needs to have brand loyalty from a niche community who would have difficulty finding another business to meet their needs. Validating demand for the franchise offering is essential to ensure longevity, profit generation beyond breakeven, successful word-of-mouth marketing, and ultimately increased retention.
Little competition for the same goods or services
Some franchises, such as KFC and McDonalds, thrive in a competitive environment. For them, competition is not always a bad thing since it creates more brand awareness and pushes them to continue innovating. However, simply recognizing the need in an untapped market will help your franchise achieve the maximum level of sales without needing a specific competitive strategy.
If there are already a couple of businesses in the area with the same offering, does your community really need another? Unless your franchise value proposition has an advantage over key competitors, too much competition can actually hurt your business.
Evaluate the growth potential of the franchise. Are they continually opening stores in new locations? Are there owners who operate more than one unit? Look at whether some units fall under corporate ownership, as this indicates that the business model has become commercially profitable enough that they can run their own units.
The possibility of failure isn’t something you want to think about when you embark on the road to owning a franchise. But if you want to give your venture the best chance of success, there are a number of questions and considerations you need to address. The franchise you choose to open may be the most important investment decision you will ever make. This is why it’s so important to buy a franchise that is worth your time, money and energy.