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Seven common mistakes made by franchisees

Posted by Carolyn Dufton on 30 March 2016
Seven common mistakes made by franchisees

1. Not seeking expert advice prior to entering a franchise

If you were proposing to buy a property for a large sum of money, you would almost certainly engage a professional to carry out a pre purchase inspection and report. Hopefully you would heed the advice provided and act accordingly.

It is astonishing that there are franchisees who do not speak to an experienced franchising adviser prior to spending in some cases, tens or hundreds of thousands on a franchised business. They engage the local solicitor who knows nothing about franchising, to advise them on their proposed franchise agreement and system.

It is always advisable to seek advice initially from a franchising specialist adviser and then an accountant and lawyer with franchising experience prior to purchasing a franchise.

2. Not heeding expert advice

If using an experienced franchising specialist for advice remember that this specialist has no agenda in the advice that they provide. The adviser does not gain or lose from your final franchise 'buying' decision. The advice provided will be impartial but honest. It is common for the adviser to provide a list of questions that need clarification from the franchisor before a final appraisal can be provided. A franchisee prospect should heed every word of the advice provided. 'Really liking' the coffee that the franchise coffee chain supplies is not a sound reason for buying into a franchise. An experienced adviser will be able to offer sound observations regarding everyday operational matters that may impact the bottom line.

If you're paying for advice, listen, learn and heed.

3. Unrealistic expectations

If franchisees haven't had advice prior to entering a franchise they can often be disappointed about the reality of being in a franchise.

I've had clients who have been in a franchise for less than three months and who want out.

So why? Is the franchisor being unreasonable and not delivering on obligations? Was the training disappointing? In my experience, no. The franchisee had not expected to be working within a defined system and feels suffocated by reasonable franchising guidelines. Had research and due diligence been carried out prior to buying the franchise, unrealistic expectations would not occur.

A franchisee has no right to terminate the franchise agreement unless under extenuating circumstances as determined by the agreement or the franchisor. Termination by a franchisee can result in heavy financial penalties.

4. Lack of research into franchising as an industry

An uninformed franchisee presents the franchisor with real challenges. It is advisable for a franchisor to incorporate a franchise education module into their recruitment programme to ensure that the franchisee understands the reality of franchising. If this module is undertaken as a formal process, it can assist in preventing future misunderstandings between the franchisee and franchisor. Franchise education modules are offered by Griffith University and are most useful if a franchisee takes the time to undertake them.

5. The franchisee not reading or understanding the legal documentation

Franchise legal documentation is lengthy and complex for the typical franchisee.

A franchisee may seek professional advice, but it is crucial that they personally take the time to sit, read and understand the disclosure document and the franchise agreement.

Some inexperienced professional advisers will skim over the lengthy documents and highlight only some points that they feel are of importance.

A franchisee must read the documentation to satisfy themselves of the agreement into which they are entering.

If the franchisee's first language is not English, a translator should be sought so that the franchisor does not commit unconscionable conduct during negotiations.

6. The other franchisees are competition

One of the best aspects of being in a franchise network is having the camaraderie of other franchisees. Being in business can be lonely, but other franchisees understand the business you're in and can support you in the hard times and celebrate the good times. Business can be shared with other franchisees when it comes to large jobs needing extra equipment or labour. This collaborative approach is franchising at its best.

For franchisees that perceive other franchisees as competition there will be little networking, no sharing and no support from other franchisees. A franchisee such as this will cling to the franchisor and their team and miss out on the true benefits that good franchising can offer.

7. If you're not enjoying being in franchising - get out

This applies to both franchisors and franchisees.

Sadly, some franchisees find that they do not thrive in a franchising situation. Sometimes it's because the franchise system is lacking and other times it's because they are not franchisee material. The constructive approach is to firstly discuss the matter with the franchisor with a view to selling the business whilst you still have a business to sell.

Franchising should be fun and with the right franchisor at the helm, the right business model and the right franchisees, it is.

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Carolyn DuftonAuthor: Carolyn Dufton
About: Carolyn Dufton Dip. Bus (Franchising) heads the team as the owner and manager of franchisingplus. Carolyn has a wealth of small business experience, and many years of hands on franchising experience.
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