What are the risks of franchising?

What are the risks of franchising?

Acknowledge that starting any business is a risk and that their are no guarantees. With that unpalatable truth out of the way everyone can move forward with their eyes open.

Market statistics for UK franchising

A bit of google searching throws up some interesting statistics on the success of franchising. For example, some surveys suggest that 93% of franchises are profitable. This is quite a claim. Franchising is generally successful but no investor should assume they have a 93% chance of succeeding. In understanding what are the risks of franchising it’s important to consider some critical issues . Theo Paphitis states that 50% of all business fail within the first couple of years. If you are comfortable with this percentage then your eyes are more wider open than many. We think that’s sensible to start with this in mind despite the 93% figure!

Your own skill set

I can guarantee to you that if I was offered Harry Kane’s job as the new England striker then I would be the hardest working member of the squad. Literally, no-one would put in more effort. Not no one! However, (and sadly for me) effort simply isn’t enough.  If you are a shrinking violet then don’t buy a face to face sales orientated franchise. You’ll fail. Similarly if you have the charm of Basil Fawlty then you’re probably not suited to a face to face customer services role. You get the idea! Your skill set must match the role.

Your work rate

Ask any successful person and I would think they would all agree that hard work is linked to success. Sure there’s the odd exception. However, let’s deal with likely scenarios here not lottery odds of a 2 hour week making you a million. If you know within yourself that you can’t get out of bed on a morning then self employment won’t suit you. You need the fixed hours of a job because you’ll struggle with the self discipline  you need to crack on under your own steam. But if you find the right franchise you’ll have motivation a plenty. One that totally engages you and you have natural enthusiasm for.

Your financing

Your available capital shouldn’t be “just enough”. If you manage to scrape together “just enough” then your car’s going to break down. Or some other unexpected cost will magically appear. We use a phrase here at Lime that is always true in franchising. “You’ve got to be able to comfortably fund it”. Your success is, at least to a degree, linked to the franchisor and their training and support. They might not be as good as you expected and the may affect you. Also consider that you might have a slower start for any number of reasons. Your capital needs to carry you until such time as profits are sufficient. That might take longer than you think. So, put plenty of funding in place. You can then concentrate on doing the business.

Professional Advice

Do we need to say this? Ask your accountant for finance advice by all means but he or she should never be the judge of whether it’s a good business for you or not. Have them look at the figures, present scenarios even, and then you decide! Remember that lawyers will always look to tear up other peoples agreements. What you want from them is a statement of the legalities not a commercial judgement, again that’s for you to decide. We experience a lot of lawyers giving commercial advice to people. Have them stick to explaining the legal position and not being a business coach. If you find a franchise professional ask them to spell out what are the risks of franchising.

Non Professional advice

The value of someone else’s opinion is often underestimated. At a franchise meeting it’s a good idea to bring someone along whose opinion you trust. They have your best interests at heart and won’t be wearing rose coloured glasses. Is the person a friend, a parent, a business associate? Ask a few people and see what they say. I’m always pleased to see others come along to a meeting. They’ll help you to see things differently. It’s even better if they throw cold water all over your grand plans. Honestly, it’s a good thing to find people who jolt you into thinking about the downside.

Market Research

My colleague Kevin Thomas was one of the top performing franchisees for Cafe2U. Prior to buying the franchise he literally visited all his potential sites and counted how many people were there. He then spoke with potential customers. Would they buy it? Once he had done his research he was comfortable moving forward.

Consider the regional demand of different businesses. You may not do as well with a garden services business in central London than someone in the leafy suburbs. This is where you hope the your franchisor has run several pilot schemes or has experience of different demographics.

Market shifts and adverse news.

Consider too where your market is going. Would now be a good time to open a night club? Would you be better in a covid proof business format? Why not apply to join our focus group and we’ll confer with you for free. You’ll also potentially get to know some like minded people.

Franchisors aren’t guaranteed to be successful businesses. We’ve seen many franchisors go under. So, check them out financially. In understanding what are the risks of franchising you need to consider what happens to you if the franchisor goes under? What happens of there is some significant adverse news with a Director or a brand, or another franchisee? You’re all in it together in franchising, good or bad.

In summary

There are no guaranteed outcomes in self employment. Income and activity is solely yours to create. If you want a guaranteed outcome get a job. Franchising has proven to be very successful, but only in the right hands. Running a business can be a lonely role too. We think it’s the sharing of best practice and the camaraderie that makes franchising work well. You’re not alone. Your colleagues are dong the same thing as you.  Everyones sharing what works and what doesn’t and that, probably more than anything else is why we are advocates for great franchisors.

Call me to discuss franchising anytime. It’s my favourite topic!

Andy-and-Mr-Electric-261x300-261x300 What are the risks of franchising?Andy Cheetham

07782 115993


Some further reading that is linked to this below.

What is the best franchise to buy.

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