Franchising Risks: Identifying Them and Minimizing Them

September 28, 2012 by  
Filed under Franchise Articles

Like any other business endeavor, franchising brings with it risks and benefits. Identifying the biggest franchising risks and trying to minimize them is likely to increase a franchisor’s chances of succeeding in his or her efforts.

One of the biggest hurdles in franchising is selling your first franchises. It is not enough to sell franchises to anybody. That would be too much of a gamble, and gambling happens to be among those franchising risks that have no place in a successful franchise company. You have to be certain that the franchisees you select will be the best possible fit for your franchise company. In other words, you have to vet them when they first apply to become franchisees.

 

Minimizing Specific Franchising Risks

 

If you have specific, detailed criteria describing your ideal franchisee, and if your criteria actually make sense for your business, then half the work is already done. You will be able to narrow down your pool of prospective franchisees so that it includes only the most desirable candidates. This is a very important part of the franchising process because, at the end of the day, it is the franchisees who will make or break your franchise company. If they don’t have the capacity to bring in a sustained stream of revenue then, sooner or later, you will be facing financial disaster.

There is no simple formula for selecting the right franchisee. Different franchise companies have different business models and offer different products or services to distinct markets. Selecting the right franchisee will necessitate attention to the unique qualities of your franchise company and calculations to determine what sort of person would be best placed to run a franchise unit in it. Simply duplicating the formulae followed by your competitors would be a big mistake. Business decisions must be tailored to suit specific businesses. Applying generic solutions to specific problems in such a scenario would be one of the biggest franchising risks you could take. Chances are you would end up experiencing problems in your relationships with your franchisees.

Other franchising risks become relevant during the later stages of the franchising process. One of them is the risk that franchisors take when they push for the accelerated growth of their franchise companies too soon. Such franchisors forget that it is their role to nurture the already operational franchise units and ensure they are thriving before running off to sell thousands more franchise units. A franchise company is viable as long as it has the capacity to give support to its established units. If a franchisor sells too many franchises too soon, then his or her resources will be stretched too thin. It will not be possible to give all the established franchisees the services that are provided for in their respective contracts. Naturally, without this kind of support and investment, the franchises will not do too well. This will ultimately result in the drying up of the franchisor’s revenue stream.

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