Franchise opportunity for women with children
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You've probably already learned about why franchisees fail so you can avoid making those same mistakes. It's a much-discussed topic in many franchisee education materials. But what about franchisors?
A franchisor can fail, too, leaving its franchisees in a bad position. While you may not be able to identify all of your franchise's weak points before investing, you can do some digging to see if your franchisor has made any of the common franchisor missteps below.
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Underestimating the cost of franchisee recruitment
A franchisor needs to invest time and money into finding the right franchisees. Personnel, training, marketing and sales are all involved in finding franchisees, and many times, a franchisor will spend money on several leads that go nowhere. Over time, this can lead to cash flow issues for the franchisor if they were not prepared to handle those costs.
Review the financials carefully to see if there are any signs of distress. Pay attention to how the franchise representatives operate, too, and look for any indication they are cutting costs while sacrificing quality.
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Mismanaging the cash flow
Cash flow mismanagement can happen for a lot of reasons, from underestimating costs in the business operations to experiencing an unexpected financial event that the franchisor did not have a cushion for. In addition, if the franchisor relies on a source of income that does not materialize--such as a set amount of royalties from franchisors in a year in which they do not generate it--the company can find itself in hot water.
Again, you need to consider the franchisor's financials. Another sign they may be struggling is if you are being pressured to invest. A solid franchisor will not apply strong pressure on you to join; they will want you to take the time needed to make the right decision.
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Signing on the wrong franchisees
A franchisee has an impact on the franchisor's entire system and, therefore, the brand. If a franchisor takes on too many franchisees who were simply not right for the brand, it can cause issues throughout the entire system.
Before you invest in a franchise, do your research to confirm the franchisor itself is healthy and making the right moves. Your strength and success are partly dependent on the strength and success of your franchisor, so you need to make sure you are going with a brand that is going to offer you a solid footing.
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