5 Ways to Cut Corners Are Hurting Your Franchise Business

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Underestimating costs is just one of the ways you create risk for your deductible.

May 9, 2021

4 min read

Opinions expressed by Contractor the contributors are theirs.


Becoming a franchisee has immediate benefits that make it an attractive business opportunity for entrepreneurs – an established brand / reputation, proven and genuine role models to follow, franchise support services and a pre-existing customer base are just a few. advantages.

While these are essential elements to the success of any business, franchises run the risk of depending heavily on these factors for success. The following five ways contribute to a mindset that can cause a franchisee to cut costs within their franchise which hurts their business.

1. Underestimation of start-up costs

Make sure you are financially covered. If you’re borrowing to fund your franchise, factor in costs like legal fees, rent, payroll, utilities, and debt repayment. Also, take into account the time it will take you to generate your own working capital to cover business operations. The general recommendation is to allow a year to determine your borrowing needs. Apply for sufficient funds to cover the above operating expenses and operating expenses for at least one year. On average, a business can take over a year to achieve a steady stream of profits. Making sure you have the capital to cover all cash flow for operations allows you to focus on knowing the business well and navigating the ups and downs of entrepreneurship without worrying about power. fulfill your obligations.

Related: What franchise price?

2. Do not use the franchise support system

Starting a new business is an overwhelming and stressful endeavor, especially for someone with no business background. Franchisees have a luxury that many business owners don’t: access to a franchisor who has created an ecosystem of knowledge to support their franchisees. This is a valuable tool for franchisees that should not be underestimated or underused. The reality is that at some point, a founder or other franchisee ran into the same problem you may be facing and a possible solution may already exist that you can quickly exploit. Why not tap into a resource like this?

3. Underestimate the importance of reviewing your financial statements

Assuming that your business will be profitable immediately or quickly is an assumption that carries great risk for a franchise owner. While it is possible, it should not be expected. A highly recommended practice for franchisees is to ensure that you have an appropriate financial reporting framework in which you review income monthly and annually, assess profits and operating expenses. In doing so, you learn the trends in the location of your business and can develop strategies to adapt when variables change in your financial reports due to business operations. Creating a financial reporting repository can include adding an accounting system to your resources at startup, or hiring an accountant to ensure that your tools are able to extract the information needed to share. and evaluate.

Related: What is the real survival rate of franchise businesses?

4. Insufficient spending on your marketing campaigns

Yes, the franchisee has immediate brand recognition and a pre-existing customer base – but your franchise must also build relationships and recognition locally. Wherever you choose to locate your franchise, you will encounter competition from other successful businesses and others that have deep roots in the community. A franchise needs to go beyond its contribution to the corporate franchise marketing fund and ensure that a secondary budget is created to specifically target local customers.

5. Do not prepare a business plan

The franchisor covers much of the setup and operating structure of their franchisees, but underestimating the value of a personalized business plan that is specific to you and your community’s needs is a big risk. A business plan provides a roadmap to success and clear, succinct information about the critical success factors. It is also a useful and often required tool for financial and operational expansion.

A typical business plan includes a summary, market analysis, management structure, product or service description, marketing and sales plan, financial projections, funding request, and general appendix.

Opening a franchise is a great opportunity for an entrepreneur to go into business and build on an already successful and reputable brand. Take carefully into consideration how far you plan to go beyond your franchise to ensure its success by treating this business the same as you would if you were building from scratch. In doing so, your business will emerge stronger and wiser.

Related: 7 steps to a perfectly written business plan



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