Before you invest in your franchise, check out how to keep your franchise on track.

Signing up to a franchise is exciting; a time of great promise, of financial and emotional commitment. But not every franchise investment results in success. Sometimes franchisees do fail in their business, and that’s never good news.

So Smart Franchise conducted industry surveys to come up with seven business truths around franchise failure and some tips for staying on track.

In order, leading up to the most common contributor:

1. Things change

However keen you are at the beginning of your new business, and despite your commitment to follow the process, it’s inevitable that things will change. Communication is the key here – are you and the franchisor looking in the viewfinder and seeing the same image? If there’s a discrepancy between what you both understand, chances are there will be a misunderstanding down the track.

2. Not understanding financials

Let’s consider the money aspect, it’s what we’re all in business for yet often is misunderstood. Talking about money and numbers is a little like the emperor’s new clothes – people don’t like to admit they don’t understand but it’s fairly common for franchisees to be unfamiliar with the terms and language bandied about by accountants and franchisors. So that’s an immediate barrier to open communication.

Franchisors might provide a toolkit for working the figures, but not every franchisee will use it the same way – which means the expected figures will be different. There can be a disconnect between the numbers on the page or the screen, and making sense of them.

TIP: Look out early on in the conversations with the franchisor and see how focused they are on you getting independent advice and how much emphasis is put on financials.

SmartFranchise co-founder Kate Groom says “It’s not enough to simply say to a franchisee ‘get some advice’. The best option is to find an accountant who specialises in franchises and seek their guidance.”

And what about understanding the financials of the business? Accountant and fellow founder of Smart Franchise Peter Knight says “a three hour slot in the induction on finances is not enough”. His advice is to find a franchisor who doesn’t overload with numbers, but provides key figures for franchisees to work with:

Sales compared to budget
Gross profit
Net profit
Bank account
Outgoings
Accounts receivable

3. Doing “crazy things”

Have you got your eye on a new car or a sleek boat once the business is paying dividends? Well, beware, because overspending in times of plenty can backfire. Kate Groom cautions, “The additional financial burden makes business harder, therefore it’s important for franchisees to look ahead at their upcoming financial commitment.”

TIP: Understand your business cycle and plan ahead.

4. The sales and marketing gap

Yes, your franchisor is going to provide you with marketing tools, possibly even a national campaign that will boost the brand. But getting the sales is up to you. Too much reliance on marketing can mean the practical part of sales is neglected.

Peter Knight advises, “New franchisees must improve their selling skills. They should book into some sales training courses specific for their business.”

5. Pride and ego

A franchisee wants to be successful (and the franchisor wants them that too) but things don’t always go as planned. When you’ve set yourself up for success, it can be hard to admit to the world that the plan has derailed. Franchisees can feel embarrassed when they aren’t meeting the benchmarks, and as a defence action can stop listening. “No-one wants to be told they’re not doing things the right way,” says Groom.

TIP: It’s important to get control by understanding the business you are operating and being prepared to listen to and take advice.

6. Business rigour

“Many business owners have no structure for running their business – they lack business rigour and discipline. Most are simply flat out keeping up with day to day and operational issues,” says Knight.

Kate Groom agrees. “New franchisees should look for franchisors who have a structured plan to help them identify ways to improve. “It’s really about helping the business owner to get skilled up in managing a business.”

Most people who start a franchise have little or no business experience. That’s a big reason they buy one. They are looking for help and it’s important for a franchisor to give them guidance on how to run a business.

7. Too little income

You’ve completed the business plan which outlines how to reach the income you need. But somewhere along the line things have slipped, and now the income is too low, and your financial commitments too high. When franchisees don’t see the financial commitments upcoming things will go awry.

So that’s why franchisees should be like meerkats – always alert, heads up, looking around. Says Groom, “Where you are today is a result of the activity in the past, so plant the seeds for good growth in the quiet times.”

TIP: Franchisees must constantly manage their financial position. They need to watch for the early warning signs of impending danger and make plans to generate more sales and find new customers. They need to manage the issues of today, and constantly look ahead. Then they need to take action and be always looking to improve.