The Five Most Risky Franchise Ownership Mistakes

Starting a business can be one of the most exciting adventures someone could ever embark on. Many people dream of starting a business of their own, whether it’s because they want to be their own boss, get away from a current job or to fill their entrepreneurial spirits. Franchise ownership specifically is a great way to get into business for yourself, but not by yourself. However, in the midst of the excitement, there are certain guidelines you should follow, particularly when becoming a franchise owner.  

Here are the five most common mistakes new franchisees make and how you can avoid them.

Underestimating Costs

The number one mistake that franchise owners make is underestimating how much capital is needed to start the business. Most franchise agreements require you to make an initial investment, but it’s important to account for every day expenses beyond that investment, such as paying salaries and rent for the building. John Blair, Vice President of Marketing at FranNet, sees potential owners making this mistake often.

“Some people will tend to cobble together financially what they need without a lot of regard for what happens when their business hits a rough patch,” Blair said. “It’s easy to look at the glowing numbers and fall in love with those, but it’s also critical to assess what happens if those projections aren’t met initially.”

Make sure you have enough capital set aside not only for the day-to-day expenses but also as an emergency fund in case something goes wrong.

Not Doing Due Diligence

Many people will fall in love with a brand, then will fail to educate themselves before deciding if it’s truly the best business for them. Someone might fall in love with a restaurant, for example, because they love to eat out, but they don’t think about all the ways that running a restaurant is different than dining at one. Oftentimes, people gravitate towards the “hot concept.” They’ll hear about a trend, see the line out the door, but won’t take the time to understand the business itself and the types of people who make successful franchisees in that system.

Blair recommends taking the time to fully absorb the brand’s Franchise Disclosure Document. The FDD is put in place to protect potential franchise owners and to provide them with all the necessary information about the company, costs, operations, earnings potential and more. Assess what it really takes to make that business successful, then decide if you’re still “in love.”

Not Considering the Ins and Outs

It’s very typical for franchisees to want to own their own business without fully understanding what it takes to be a business owner. You might love the concept, but you might not love what it takes to be successful at it.

“People may love the idea of retail because they love working with customers, but they might not like inventory or bookkeeping,” Dawn Abbamondi, Director of Marketing & Brand Development at SMB Franchise Advisors said. “Or, if it’s a business that’s driven by marketing, but you’re not comfortable going door to door shaking hands, it might not be the best option for you. You’re not buying a job – you’re investing in yourself and the education you might need to fill certain roles.”

Think about not only what you enjoy doing on a day-to-day basis, but also think about if your personality aligns with the phase the brand is in. For example, if you’re more entrepreneurial, it might be better to consider a younger brand because you’ll have more opportunity to be creative. But if you prefer to follow steps that are laid out for you in detail, a more established brand might be best for you.

Having Unrealistic Expectations

When a franchisor started their business, they were entrepreneurial and came up with amazing things, and people sometimes get caught up in the story. When a potential franchisee comes in, they listen to that story and automatically picture themselves doing the same thing.

“When hearing these stories, the franchisee might not pay attention to the fact that when the franchisor started, they worked 90 hour weeks to make it work,” said Abbamondi. “Listen to all the hard things as well as the fun things that a franchisor tells you about their business.”

Franchise ownership is not a hobby. It takes commitment, especially in the first year of business. After years of success, many franchise owners can afford to work the business part-time and hire managers to take care of the day-to-day duties. But it usually takes several years of success to get to that point, and until then, you simply have to put in the hours to get your franchise up and moving — and too many people go into franchising thinking they can get by on 6-hour days at first.

Growing Too Fast

If you’re looking to continue growing beyond your first location, make sure you have the infrastructure in place to accommodate that growth. In order to continue being successful, you need to have a team you can trust.

Abbamondi said, “When you’re opening another location, ask yourself if you have management who can duplicate what you’ve already done. If you have a great GM who packs table every day at your restaurant, for example, and you don’t have another GM who can do the same at another unit, it might not be as successful.”

Overall, be sure to trust your gut. Create realistic expectations and work hard.

“We know the excitement people have when they find a concept that’s right for them,” Blair concluded. “We’ve also seen some eyes really get wide when you start to point out the ways in which they may not necessarily be a strong fit for that brand. We hear a lot of, ‘Oh, I didn’t think about that.’”

Removing the emotions can be hard sometimes, but avoiding these common mistakes is a critical part of the discovery and research process to ensure a franchise is a great fit.