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Many budding entrepreneurs are under
the impression that buying a franchise is a guarantee for success. They feel
that the franchise fee that is paid up-front ensures them a proven business
methodology and wealth. This couldn’t be farther from the truth!
It is difficult to quantify franchise failures because in many instances to
avoid having a franchise file for chapter 11 or bankruptcy, a franchisor will
buy the business back or assume its operations. In fact, most franchise
agreements allow a franchisor to buy back or assume operational control of a
floundering franchise. In some cases the franchisee will loose their entire
investment.
Some studies indicate that the percentage of failure in the franchise industry
may be no different than situations where individual have started their own
business. Even the large franchisors such as McDonalds have bought back or
assumed control of floundering franchise operations.
It may also be worth noting that many franchisors have gone bankrupt taking
their franchisees with them. Whether or not a franchisors failure will affect
the franchisees ability to survive is relative to the day-to-day involvement
that the franchisor has in the franchisees business, the more involvement the
more likely a franchisor’s demise will spell doom to the franchisee. If the
franchisee buys all of the necessary raw materials to operate their business, be
it food, cleaning supplies, and/or specifically manufactured product the
franchisee must find alternative suppliers in the event that the franchisor
fails. In some cases this is doable in others it is almost impossible. As an
example, you have a franchise to sell window treatments, blinds, and curtains.
As the franchisee, your company does the selling and the franchisor has a
factory where the products are produced. If the franchisor was to fail, you are
left without a supplier for your sales and replacing a manufacture such as this
would, if even possible, take a lot of time. What happens to your business in
the interim?
The fact that in most countries, franchisors have to register and must follow
specific guidelines and disclosures pertaining to their franchises does not
meant that the governing bodies have done any due diligence on the actual
survivability of a franchise or franchisor.
As with buying any business the primary key is in performing due diligence on
all aspects. This includes considering whether or not you should create your own
business or acquire a franchise.
Robert Berman is a business consultant specializing in business development,
strategic planning, acquisitions & mergers and international sales & marketing.
He has been a columnist for the National Post Newspaper under the byline of "The
Business Doctor" and he has authored "The Business Buyer's Manual". He is
available as a keynote speaker in many areas of business. He may be reached at
Robert.Berman@businessbuyersmanual.com or visit
http://www.businessbuyersmanual.com
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