Top 3 tips to avoid franchise headaches

Opening a franchise may seem like a great way to start your own business but the recent closure of eight Popeye’s Chicken locations show just how badly things can go wrong for franchisees.

Earlier this week, Popeye’s announced they were closing their franchise locations in Mississauga, Brampton, Oakville, Georgetown and Milton.

Mississauga franchise consultant Gary Prevenost said his experience in the industry has shown him that a lot of headaches that plague franchises can be avoided. But the president of  industry consultation firm FranNet’s Southern Ontario office said a lot of the work must be done in the research and early stages.

Here’s some of the top tips Prevenost gave to YourMississaugaBiz.com for people considering purchasing a franchise and for existing franchisees:

  1. Plan finances well ahead of time
    According to Prevenost, the number one reason why franchises fail is because of miscalculations and resulting lack of capital. “You should never buy a business with everything you’ve got just to open the business,” he said, estimating most of his clients invest 25-40 per cent of their net worth.This financial buffer is important if a business doesn’t grow as fast as they want, has lower sales or other unforeseen circumstances.
  2. Don’t buy a business just because it seems like a good idea
    Prevenost said Tim Hortonsis a great example of a very successful business that lots of people want to buy. However, if the potential franchisee doesn’t have the skills to deal with a lot of staff, no experience managing big teams or has never handled process before, that’s going to be a big challenge and quite possibly too much for them to handle.Potential franchisees need to find out if there’s a training system for skills they don’t have or if they’re going to have to figure things out while on the job.Personality type also matters in the decision-making process. “I would love to have the cash flow of a Tim Hortons,” Prevenost said. “I would hate to have to manage teenagers.”
  3. Follow the system you paid so much money for
    Prevenost said a big myth is that all franchises are highly structured and everything has already been figured out. Some people are really suited to that and it does often exist in restaurants or food service companies.However there is actually a varying degree of structure in business-to-business franchises will provide. “There’s more agility and flexibility required to meet the demands and needs of the customer,” he said.The problem is when there’s a mismatch. “They might be highly skilled, but they might want to fix and adjust things that aren’t meant to,” Prevenost said. “They’re too entrepreneurial for a highly-structured system.”

 

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