Franchising is one of the best ways to start a business without starting from scratch. Franchise businesses have an established brand and process that’s proven effective. But just because their brand is already well-known to the target audience, doesn’t mean that it’s easy to run one. Most franchisors still face challenges along the way and while some of them may find franchise business loans the key to their success, it isn’t enough to solve other issues.
Like any other entrepreneur, franchise business owners are also prone to make mistakes. This doesn’t only affect their business, but will also affect the confidence of their franchisees. Franchise business owners need to understand that franchising businesses are not a sure win. It will still take time, effort, and a lot of follow-throughs to make a profit and succeed.
Here are the top 6 common mistakes that franchise business owners often make:
Money is very important when opening a franchise business. The larger investment you make in your franchise business, the greater your chances are in generating higher incomes in the future. If you underestimate your capital, there’s a big possibility that you’ll end up struggling to make ends meet in the future.
Ideally, franchise businesses should at least have a fix-figure bank balance before they pursue their franchising dreams. Businesses like these tend to lose more money before they start getting profits. Before opening up, they should already have an estimated budget in place for the operations and development of the business. If they need more financing, they can opt to take out an SBA loan to maintain adequate working capital.
- Failing to Secure Access to Financing
Getting your franchise business financed isn’t as easy as getting a house with a mortgage. Timing plays a big role in securing a business loan for your franchise business. Applying for financing during the times you need it the most, you’ll be forced to accept the lenders’ unfavorable terms. This could do more harm than good to your business. Unfortunately, many franchise owners often realize this mistake when it’s already too late.
To avoid this problem, make sure to secure access to financing before the need arises. Some banks will also require borrowers to secure a 30 percent down payment or present collateral for the loan. Be sure to educate yourself with the different types of loans available for you so you won’t end up struggling to make ends meet.
- Not Following the Franchise Process
All franchise businesses have their strategies and systems that have proven to be effective in bringing their business to success. However, some franchisees tend to change some procedures if they’re uncomfortable with it or feel like they can make it better. As a result, they take on a different approach to things that could disrupt the process and increase their chances of running into trouble.
The system that the franchisor has implemented is your very own recipe for success. It’s because of that carefully crafted plan that their franchise business is successful. So make sure to study and understand the whole system, and not just the bits and pieces of it. You’ll thank yourself in the end for it.
- Getting Into a Franchising Business Without a Franchise Lawyer
When franchising a business, there are a lot of legalities involved. The Franchise Disclosure Document is one of the legal documents involved in franchise businesses. According to studies, it takes about 20 years of education and experience for one to fully understand the underwriting of FDDs. With only a few years in the business, franchisers and franchisees can’t expect to understand the legal terms listed on the document in just one go.
The entire legal process of franchise businesses can be complicated and you won’t be able to understand each one of them without the help of a seasoned franchise lawyer. Your legal counsel can spot any red flags from the FDDs and advise you on what you need to do. With their help, you’ll be able to make better decisions regarding your franchise business. While hiring a franchise lawyer can be pretty costly, it’s always an investment worth making if you’re hoping to start a successful franchise business.
- Insufficient Franchisee Training
Training your staff is a critical part of building a successful franchise business. However, most franchisees tend to focus only on training their employees for basic operational training. They often overlook the importance of management training.
Both owners and staff need to study the process carefully and absorb the training. Running a franchise business takes a lot of effort but it’s needed to sustain growth. Be sure that you and your employees understand the product you’re selling and put in extra effort to market it.
Need Franchise Business Loans to Finance Your Business?
While franchises are already established businesses, it doesn’t eliminate the risks associated with running a small business. But knowing about the possible mistakes you’ll likely encounter will help reduce these risks and will help you build a successful franchising business. If you’re planning to purchase a franchise business, there are different loans available for you. Talk to one of the lending experts in to learn more about franchise business loans.