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Franchisee Advice

Why Do Some Franchisees Fail?

Franchising is widely seen as a blueprint for business success, yet on rare occasions franchisee failures do occur.

Mark Rose

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DangerZone

Reasons for franchisee failure

Over the years I have come across several instances of franchisees failing. In none of them was the concept of franchising to blame, rather its flawed implementation. Cold comfort for those affected, especially because, with some foresight, most of these failures could have been prevented. To help future generations of franchisees and their franchisors to minimise the risk of franchisee failure I have isolated the main reasons for things going pear-shaped and list them below.

  • A gene is missing
    The question whether franchisees are in fact entrepreneurs has been the topic of many debates. Consensus exists that franchisees are individuals who seek ‘sheltered entrepreneurship’; that’s OK, as long as they do not expect the franchisor to operate the business for them. The entrepreneurial gene must be there!
  • Unrealistic expectations
    Some individuals approach an opportunity with rose-tinted glasses. They only see what they want to see and believe that investing in a franchise guarantees success. This is an oversimplification – a franchise is a blueprint for business success, but it is up to the franchisee to make the business successful.
  • Sloppy evaluation
    Prospective franchisees need to investigate not only the business sector they want to enter and the network they want to join, but also their own suitability for the role of franchisee. Speaking to existing franchisees, as well as consulting with professionals, in several disciplines is key but all too often overlooked.
  • Lack of commitment
    Some individuals join a network without having any intention of playing by its rules. They don’t like the prevailing culture but believe that, once they have gained access, they can do their own thing. Granted, the franchisor’s selection process should be thorough enough to filter them out, but some prospects can be highly convincing. They willingly agree to contract terms they have no intention of abiding by and even lie about their skills and available resources, just to secure the opportunity. This is a clear case of ‘shooting yourself in the foot’ because, when the wheels come off, it is not only the brand that suffers, but the franchisee also stands to lose everything.

How can you protect yourself?

Prospective franchisees need to examine their skills, preferences and resources, and then seek out franchise opportunities that match their profile as closely as possible. Moreover, it is useful to invest in a recognised brand and set up shop in an area where the franchisee has roots because this facilitates networking.

After careful evaluation of several opportunities, the prospective franchisee needs to make a decision and then stay the course. Since the beginning of April 2011, he/she has a useful ally in the form of the Consumer Protection Act (CPA), which regulates franchising. Among other things, it compels the franchisor to provide a comprehensive disclosure document and grant two separate cooling-off periods before the franchise agreement becomes effective.

At this point, and given that in most instances a prospective franchisee will invest his/her life savings into the venture and take on substantial debt, it makes perfect sense to have the opportunity of choice checked out by competent advisers before the franchise agreement is signed.

Once the franchise agreement becomes effective, the franchisee must be willing to adopt the brand’s culture and conform to the network’s systems and procedures 100%. This means, among many other things, enthusiastic participation in marketing drives and other activities arranged by the franchisor, including initial and ongoing training. Financial prudence and a willingness to be a hands-on operator are other essential requirements.

A good relationship with the network’s field service consultant is another requirement. He/She is not a head office spy, but can be a useful ally who can act as a mentor and provide valuable guidance. Hiding business problems from him/her is about as clever as a patient hiding symptoms of a dread disease from the doctor.

As we said in the beginning, success in business can never be guaranteed but adherence to these simple pointers will set a franchisee on the right course. Beyond that, dedication and sheer hard work must do the rest.

Franchisors, on the other hand, will be well advised to work within the parameters of ethical franchising, which are now enshrined in the CPA. Of special importance is a tightening up of franchisee selection procedures because granting a franchise to the wrong person will create significant problems for the network; it can even destroy the brand.

“Written by Eric Parker (Franchising Plus) in association with Mark Rose, Nedbank”

Mark Rose is the Head of New Business Development at Nedbank Business Banking. He holds a Masters in Business Administration (MBA) from the Oxford Brooks University, as well as various business qualifications from the Gordon Institute of Business Science (GIBS), the University of Stellenbosch Graduate School of Business, and the University of South Africa Graduate School of Business. Nedbank’s New Business Development unit develops customised industry specialised offerings to the medium sized business market, including Franchising, Agriculture, Professional – including Financial and Legal Practices, and the Medical Fraternity. This unit has also developed a unique Enterprise Development proposition. For specialist advice and more information on the Nedbank Franchising proposition visit the website or send an email to franchising@nedbank.co.za

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Franchisee Advice

5 S-Words Make Your Store Site Pay For Itself

Richard Mukheibir, CEO of Cash Converters recently addressed delegates at the FASA (Franchise Association of SA) conference on the topic of choosing the best location for their business. He spoke about the 5-S technique to assist business owners with deciding which premises is best suited for their business.

Richard Mukheibir

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retail-franchise

The combination of continuing trading uncertainty in South Africa and the new financial year for many businesses can add up to carefully reviewing costs – including leases on premises. Choosing a site to set up or relocate your business can be just as stressful as deciding where to buy a house – and just as fundamental to its health, finances and sustainability, says Richard Mukheibir, CEO of Cash Converters.

This is not the time to snap up the property with the cheapest rental as that might turn out to be something you regret in the long run. Nor is it the time to be dazzled by the swankiest premises you can find. The potential for bragging rights could turn out to be poor value for money.

“This is a time for your head to rule your heart regardless of the industry you trade in.” he says.

The real-estate mantra of “location, location, location” works just as effectively in commercial as it does in private property but you will often be looking for rather different factors. Mukheibir shares his 5-S technique to help you begin narrowing down the areas where you will consider locating your business – first at the macro level, focus in further to the meso level, then look more closely at the micro level before you start weighing up specific sites.

1. Strategy

Remind yourself of the medium and long-term strategies you have developed for your business. Keep your understanding of your business’s customers, purpose and growth prospects top of mind when you are selecting the areas where you will start looking for sites.

Related: Effective Ways To Bring Customers To Your Door

2. Scope

Within those areas, redline any sections where you feel the competition from other businesses will detract from your potential to grow your market. Greenline areas where there are good synergies between the people who live or work there and the demographic that you have identified as your target market.

3. Synergy

Make sure there is clearly a good pool of potential customers for you – size definitely matters when it comes to ensuring that there are plenty of customers available to you. Look specifically for facilities that cater for the kind of customers you want to attract. Sports stores benefit from being close to schools and tertiary colleges, for example.

4. Sight

Although many businesses now have an online element, most still benefit from attracting customers to walk through the door. For your premises to be a good fit for your business, you should be located in plain sight and ensure that your ability to market yourself locally through signage and lamp-post posters is not restricted by local bylaws.

Related: FASA Establishes Industry Specific Food Franchise Forum

5. Security

You will attract and retain good customers and staff if they feel they’re secure in the area. This perception includes factors such as easy, safe parking and a welcoming environment.

“Making a success of your business is not just about the product or your branding,” says Mukheibir. “It can be as fundamental as finding a site that ends up paying for itself. To do this, it must offer you a well-calculated gap in the market where the strong demand for the product or service that your business offers ensures sales and profit. If you have considered all these steps carefully, you will never worry about making rent and wages payment again.”

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Franchisee Advice

6 Things You Need To Know About Profit And Cashflow

Why your business needs both and how to check.

Richard Mukheibir

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profit-and-cashflow

In the heat of the action as you build your business or launch a new line, it’s easy to hope some aspects will take care of themselves. It’s especially tempting to fall into that trap with your accounts if you don’t like dealing with figures.

Despite having a B. Comm degree, I’m happy to admit that I don’t really like accounts. I much prefer strategies, management and business development. Fortunately, my co-founder and our Chief Financial Officer Peter Forshaw tirelessly keeps us on track financially – and his message to our franchisees is always that in your own business, you must understand enough of the financial basics to know whether your business is swimming or sinking…

It’s so important that we include this as part of our franchisee training. To get you started, here’s what Engela van Loggerenberg, our Group Financial Manager, tells new franchisees:

  1. Cashflow and profit aren’t the same: You can’t track one and assume the other shows the same pattern. There is no natural correlation between the two – your cashflow can be positive and you can be making a loss or your cashflow can be negative but you’re making a profit.
  2. Cash keeps you going: It’s vital to have money available in your business so you need to be generating enough cash to pay operating expenses. Otherwise you could be making a profit but not be able to pay staff wages. If so, you will either have to put in some of your own money or take a loan to keep your cash flowing and your business afloat.
  3. Time for a checkup: Both cashflow and profit are important to a business – but you can’t do anything without cash which is why you have to manage your cashflow carefully. Check your profit monthly but your cashflow daily. This will alert you to problems in the making so you can head them off. You will see if your clients are overdue in paying their accounts with you, for example. If they fall behind, this could in turn squeeze your ability to pay your operating expenses, which is why cashflow monitoring is such an important tool to keep your business afloat.
  4. Different perspectives: Remember when you look at your figures that profit figures are a result of what has already happened and are usually reported with a time lag of a month. Cashflow is a snapshot of what is happening in your business now and will have an impact on profit figures in the months to come.
  5. Know what you’re looking for: What you need to know are your net, not gross, figures. For net cashflow that is your incoming cash less your outgoing cash for the period. So if you are receiving more than you are spending, you will be left with money in the bank to meet future expenses. Similarly, your total sales less direct costs make up your gross profit. Deduct all your operating expenses from the gross profit to calculate whether your business is making a net profit.
  6. Make the most of your cash: Take pressure off yourself by keeping spare cash for future expenses such as VAT and taxes in a good interest-bearing account such as a money market, call or investment account. Then set up reminders ahead of time to arrange to withdraw the sum required.

Remember that any system is only as good as the person operating it. So if like me, figures aren’t your thing, make sure that you have someone at your side who can manage them for you.

Read next: 4 Factors To Consider Before Converting Your Independent Business Into A Franchise

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Franchisee Advice

3 Ways To Ensure Your Loyalty Programme is Working Hard For You

Plastic cards are making way for app-based loyalty programmes. Is your franchise keeping up with the digitally savvy consumer?

Diana Albertyn

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The average consumer today is a member of at least five of the 100-plus loyalty programmes in South Africa, according to a 2017 study by Nielsen. As the loyalty playing field becomes more cluttered and competitive, what are you doing to ensure each one of your franchisees are catering to customer needs when it comes to loyalty?

Mobility. It’s not the newest buzzword, but it is useful for attracting customers who don’t want to lose loyalty points because their card is lost or not with them. Ailsa Wingfield, Nielsen’s Head of Emerging Markets: Thought Leadership, says that as adoption of non-traditional payment methods increases, loyalty programmes also need to introduce payment type flexibility.

“Mobile payment platforms will increasingly deliver an opportunity for loyalty-programme engagement with consumers, providing a convenient and personalised way for programme members and retailers to engage with one another all along the path to purchase.” – Ailsa Wingfield Nielsen Head of Emerging Markets Thought Leadership.

Related: 11 Ways To Double Your Customers In 4 Weeks

Have you considered what role tech could play in your current loyalty programme? Here are three ways to apply digital enhancements that appeal to present and potential customers: 

1. Offer differentiation through more options

Research has concluded that the loyalty programmes devised by retailers and franchises are not innovative enough to capture the attention of the youth – Millennials and Gen Z. it’s time to diversify your rewards offering. But how?

If your customer base is predominantly younger, being omni-present is key, according to the Truth Loyalty Whitepaper: “An omni-channel approach will not only meet the demands of the younger customer, it will also allow your business to combine intelligence on shopping, search and web behaviour history to assist you in identifying when to offer an in-store promotion, extend a seasonal offer or make a product recommendation through the appropriate channels.”

Implementing a digital loyalty campaign is also a smart way to reduce costs. Coffee shop franchise Mugg & Bean’s Generous Rewards App and partnership with Vitality Active Rewards, means members can earn cash-back rewards to spend on their favourites. Just downloading the app earns you a R25 voucher.

2. Use your tools to engage more

A crucial mistake most franchisors make is not communicating consistently with their loyalty programme members once they’ve signed up and increased numbers. They spend a lot of time recruiting customers to join, but expect them to prompt cashiers for points’ balances and produce their cards independently in their various locations.

“You have gained permission to talk to your customers and created the opportunity to collect enormous amounts of valuable data. Use this to your advantage by creating meaningful and relevant engagement initiatives and communications across your customers’ lifecycle,” advises Truth, a boutique consultancy business specialising in customer centricity and loyalty programme strategy and design.

When enhancing your engagement strategy, Accenture advises that you keep the following in mind:

  • 54% of South African consumers are loyal to brands that actively engage them to help design or co-create products or services.
  • 57% are loyal to organisations that present them with new experiences, products or services.
  • 47% are loyal to brands that engage them in ‘multi-sensory’ experiences, using new technologies such as virtual reality or augmented reality.

Related: 3 Ways To Stop Taking Your Most Loyal Customers For Granted

3. Keep the experience simple

Review your loyalty programme. Honestly. Then ask yourself if you’ve made your programme too complicated for the layman. If your answer is ‘no’ or even ‘maybe’, how can your target consumer ever reap the full rewards of this programme if they don’t understand the rewards on offer and how to redeem them?

Changing rules too often is the first complication to go. No matter which one of your stores they choose to shop at, the redemption and earning process should be simple enough to keep members interested and engaged in the programme. Make sure you keep your programme simple and transparent.

“Clicks made a simple but fundamental change to its redemption process – paper-vouchers were replaced with virtual points that can be redeemed as cash-back when you swipe your card at the till. While Clicks and Dis-Chem are among only a handful of brands that do this, it’s a sure-fire mechanism for increasing redemption,” said Amanda Cromhout, founder and CEO of Truth.

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