Reasons Why Franchises Fail (And What You Can Do) 

Reasons Why Franchises Fail (And What You Can Do) 

For any individual looking to start a business without having the means to build something new from scratch, a franchise company is very appealing. While there are some start-up costs involved (as is the case with any kind of company), it can be easier to jump into the game with no experience. So, let’s look at the top reasons why franchises fail and how you can avoid it yourself.

Reasons Why Franchises Fail (And What You Can Do) 

But that doesn’t mean that franchisees don’t come with risks. Unfortunately, franchises are still one of the most common types of companies that fail quickly after starting up. There are several reasons why this might happen, and these reasons can be different depending on the type of franchise it is and what industry it serves in. Regardless, it’s important to understand the biggest reason why franchises fail and what you can do to keep your company on the right path to success. 

No Financial Safety Net

No matter how affordable the start-up costs are for your desired franchise, you still need to have enough financial resources to cover all your needs and then some. You need a lot of liquid money to oversee a business like this, and it’s not a good idea to run out of reserves. You need to ensure that your monthly financial needs are being met and exceeded as often as possible. Come up with a system of 

Bad Management

illustration of bad manager with devil shadow, representing bad management

One of the biggest reasons why so many franchises fail soon after they begin is due to poor management. Whether the business owner can’t keep tabs on every working part of the machine or the company’s accounting department is severely lacking, poor organization can lead to the failure of a franchise overall. Managing is about controlling both the finances and the people involved in the organization, on both ends of the transaction. If you’re just starting out, consider an automated accounting solution that can help you keep track of your company’s financials in a secure and hands-free way.

Rule Breaking

In order to successfully own and operate your own franchise, you need to play by the original company’s rules. This means that every recipe must be exactly the same, every policy must be reinforced, and every action that represents the company must follow along with the guidelines given to you upon start-up. Some franchises get shut down because they are inadvertently breaking some rules. Unfortunately, a lot of unseen errors happen in the accounting department with most franchises. That is why it’s particularly important to secure a skilled bookkeeping process so costly mistakes don’t keep slipping by. 

No Available Training

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Training and skill development concept with icons of online course, conference, seminar, webinar, e-learning, coaching. Grow knowledge and abilities.

It can be hard to figure out what to do if you don’t have any guidance. Your employees can’t be set up for success if there is not adequate support. Even a training manual with different operation procedures can help a new franchise familiarize itself with the company as a team. It is the responsibility of the franchisors to provide this training and support to individual franchisees, in order to maintain profitability and growth moving forward. 

Lack of Change

Whether due to inability or stubbornness, a lack of change in business procedures could lead to the downfall of your franchise. It is important to stay apprised of updating customer needs and different operation trends that could help your well-oiled machine continue to run efficiently. If you aren’t seeing as much of a profit margin as you’re expecting, it means there are some things that are due for a shift. See what is hurting your financials and implement much-needed change to keep the system afloat.

Make Better Buying Decisions for Your Franchise

No matter the overarching reason for the failure of a franchise, it ultimately comes down to the dollars and cents. The disorganization of a company’s financial assets and the lack of professional bookkeeping can create unseen errors that put the franchise at a bigger and bigger risk for bankruptcy. It’s important to understand and follow the standards and procedures outlined in the policy manual given to you by the franchisor. But, at Indevia, we know that success takes more than that. You also need to plan ahead and cover all of your bases in case you’re unable to expand your bottom line. 

If you are considering a franchise opportunity and you are struggling to meet your accounting needs, get in touch with our Indevia team today. Our automated accounting solutions are designed to identify the specific needs of your franchise and implement real changes right away. Schedule a consultation with us today to get started.  

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