6 ways franchisees can dodge business failures

By John Moyes

As a franchise consultant I have been asked many times what are the main causes of franchisee failure in the industry and how to avoid them.

Most failure comes back to a couple of industry problems, lack of proper training and undercapitalised owners.

Often the basic training is rushed or inadequate and follow up is often very minimal.

Many franchisees are inadequately capitalised and have over borrowed either from banks or family either way it becomes a problem in quiet seasons. Most responsible franchisors like no more than 40% borrowing which is a fairly safe margin.

There are further reasons of failure.

Cost controls being a major problem, with over 20 years in the fast food arena I never cease to be amazed at the number of franchisees that I talk with who do not know what stock level they are holding , what dead stock they have, when ordering they just guess what they need. It is absolutely essential in today’s market with rising costs to know what your costs really are.

We all know that a major killer is the cost of labour and rents, which are continually rising. Wages you can control rent is not so easy. With wages employ the minimum of staff and where you can man the fort yourself, I have found over the years that many franchisees want Saturday & Sunday off and once a week some other day off or afternoon. When it is quiet more reason to do the work yourself why pay staff when not needed.

The staff you do have ensure they are multi-taskers and very efficient so that they can often cover for another staff member who is maybe busy with a customer.

Another cost factor often overlooked is machinery maintenance especially refrigeration equipment. Cleaning grills and air vents can save a heap on electricity alone, clean weekly.

Regular servicing can prevent major expense such as new compressors often thousand of dollars, when a 3 monthly service would probably cost you less than a thousand per year.

Every dollar wasted is an added cost of sales.

One other point I would like to make is retraining. We are never too old to learn and we need to continually train staff and self in all areas of the business especially customer service which is certainly getting better in some parts but still leave s a lot to be desired.

Training staff to up sell is also very important but I hardly ever see or hear someone upselling with the exception of say McDonald’s and Hungry Jacks.

It has been said that 20% of McDonald’s sales are in fact from upselling.

I had a sticker on the cash register, which said “ I don’t pay your wages the Customer does so remember that always.”

I am sure most business people would love to add 20% to their sales.

In the late sixties early seventies I was relief manager for a chain of Newsagents/ tobacconist in the UK whenever someone purchased a pack of cigarettes I always asked if they needed matches or lighter fuel 70 % always purchased may be a very small item but none the less it increased sales.

I trust that the above pointers are helpful and I am sure if put into practise will make your business more profitable.

So what can Franchisors do to alleviate some of the problems?

First thing is proper training in business management ie. costs, staff recruitment, local store marketing, ordering and stock controls.

Full product training and store maintenance training.

Regular mystery shoppers with results passed on to the franchisee and retraining if necessary.

Sales training especially associated products to up sell.

Negotiation of a fair market rent for the site.

You can never over train someone, regular franchisee meetings at least quarterly, a time of sharing ideas and implementing those that work.

Always remember that the franchisee is your customer and they expect good service from the franchisor.

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