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Failing Franchise: What to Do Next

franchise failure

Failing franchise

When you are pitched by a franchise company that franchises can’t fail, just stay away from that franchise: Franchises – just like any other businesses – can fail. What to do next if your franchise is failing?

I was pitched that franchises has a better sustainability due to their inherited ability to succeed. I was also pitched that franchises can’t fail because when you buy a franchise, you buy a proven system.

Wrong – my two franchise units were going out of business for one reason or another.

I’m not going to point a finger to my franchisor because pointing fingers won’t solve anything. In fact, I believe in the saying that if you point one finger to other person, the other four fingers are pointing at yourself – meaning, I am the one who is responsible for my big failures in franchising.

All in all, my franchise units fail because of my wrong mindset and false hopes. Along with the globalized impact of recessions, my franchise units couldn’t withstand the challenges presented to them.

Well, things happen – as a business owner and entrepreneur, you need to pick up the pieces and move on – fast.

What are the signs of a failing franchise?

A simple question, but surprisingly, many franchisees don’t realize (or don’t want to know) that their franchise units are on the brink of failure.

One good sign that your franchise unit is about to fail is a stable sales figures and overall franchise unit performance. Unlike what many people think, stability in business is your enemy. You don’t want to earn a steady profit – you want to increase your profit.

When your franchise unit’s revenue peaks and becoming stable in at least 3 months, you need to start to worry and start to analyze possible problems: Is your local economy declining? Is your local market is being bombarded by new competitors? Is your franchise brand name not powerful enough to conquer the market? Is your franchisor leaving you (and other franchisees) stranded?

There are so many questions to answer – and if you do feel that your franchise unit is failing, your next step would be calling for help from your franchisor – this leads you to the second sign.

Normally, your franchisor will help you with your franchise unit problems. But what if your franchisor also can’t turn around the negative trends of your franchise unit? If so, then this will be your second sign of a franchise that is about to fail.

For me, I stopped at the second sign. I have analyzed my franchise units’ situation, and have tried many things to increase the performance of my franchise units, only to find that my stores’ revenues stay stagnant.

I then consulted my problems with my franchisor, and I managed to convince them to help me manage my franchise unit. The result: Revenue stay the same 12 months after it’s being managed by my franchisor. Not good.

To cut long story short – the drowning economy pull my franchise units with it. With no growth in more than a year period, my franchise units are starting to crumble. The end result: I closed down one franchise unit, and have the other one being taken over by my franchisor with poor financial rapport.

What to do if your franchise is failing?

You could try to do what I did – ask for your franchisor’s help to manage your franchise unit. Chances are, getting your franchise unit’s business operations back on track according to your franchisor’s operational standards can help you avoid business failures. One possible drawback in this is that your franchisor will ignore you, anyway.

Another suggestion – you could ask for help from franchise experts / mentors, fellow franchisees and other franchising forums, organizations and clubs to share info and seek help.

Know when it’s the time to stop

Many business owners I know – including franchise owners – say that they will try “until the end” to save their failing business.

After some real case studies from my friends and colleagues, I conclude that the best way for you if your franchise is free falling regardless of the help you receive is to close down or sell the business.

The keyword here is fail fast. You don’t want to hang on an ailing business, draining resources – often your personal money – only to find that you need to close down the business, anyway.

I choose to fail fast. Doing so, I save thousands of dollars that I can use to establish a new business (which I did.) A fellow franchisee I know hang on to her franchise unit through all the trials and tribulations, only to find her franchise unit closed down eventually – after spending thousands of dollars in her efforts to save the business.

It’s darn hard to close down your franchise unit, especially emotionally. But when the time comes, you need to act fast, pick up the pieces, and move on – that’s what entrepreneurs are good in!

Ivan Widjaya
On failing franchise
Image by Avolore

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2 Responses to “Failing Franchise: What to Do Next”

  • Another very good post, Ivan. I’m not sure if I’ve relayed on this site my own experiences surrounding franchise failure. Nevertheless, I’ll do so as I’ve been asked time and again to post the following article that I’ve written about my own personal experience as a multi-unit franchisee where I succeeded at first, only to crash and burn later on. This article has been posted on several of my blogs, and picked up by numerous other blogs and online magazines. I have received numerous comments and inquiries about the article, individuals sharing their personal experiences and requests for assistance. Although I cringe at the thought of any business failing, I admire and respect the fact that franchisees and franchisors alike know when to put their pride aside and ask for assistance, and I look forward to providing my experience and expertise to help determine a practical resolve to their problems.

    I’m proud to say this article has been instrumental in helping a number of businesses keep their doors open and work towards recovery. On the other hand, I’m also sad to say several businesses were not as fortunate, but at least the owners were able to exit with dignity and in few cases, with less liability than they previously thought possible. And, in one case, the owner actually exited in the black when we were able to facilitate the sale of her business when she previously thought about just walking away.

    Fear and Consequences of Failure

    I can personally relate to the trials and tribulations of owning franchise businesses as I have “been there and done that” and have experiences on both ends of the spectrum from achieving overwhelming success to dealing with bitter failure. I have definitely come to understand the fine line between success and failure in trying to nail down the American Dream.

    I know it is sometimes counterproductive to even mention failure which is why the subject is always avoided and never discussed. Yet, it’s out there and it’s real. Once franchisees face the possibility of failure and its very real consequences they can be motivated to understand that failure is not an option and commit 100% to a plan that addresses immediate problems and provides solutions accordingly. Even if it’s necessary for the plan to be quite drastic or aggressive due to prevailing circumstances, franchisees that unequivocally realize that failure is not an option are prepared for immediate action.

    Let me emphasize one point. Franchisees should not view poor sales and disappointing profits as either potential or immediate failure and stick their heads in the sand. I made that mistake in the past and suffered the consequences. Instead, franchisees should build upon the courage it took to become a franchise business owner and recommit to success as they did when they first took the entrepreneurial plunge.

    They need to remember their wishes, hopes and dreams that prompted the decision to own their own business? They need to remember the admiration of family and friends when they heard about the new venture? They need to remember the excitement when they actually signed the franchise agreement?

    Unfortunately, there’s a very distinct possibility the root of the problem is embedded in the franchisee’s actions, non-conformity to the franchise system and unwillingness to face reality. However, as there was some shining light evident during the franchise award process, it may not be a totally lost cause if the franchisee is made to completely understand the implications and consequences of failure.

    As franchisors are faced with the potential of closed units during this recession that may be the result of things out of their control, it’s imperative they don’t lose even a single unit just because a franchisee just flat out needs a snap back to reality. It’s worth the effort.

    Let me clarify something. I failed as a franchisee. Not because of anything the franchisor did or didn’t do but because I put and kept my head in the sand and did not face reality. I could go on and make excuses about things that happened around me but at the end of the day I could have turned things around if I got my own head out of the sand, made some difficult decisions and took full, immediate responsibility.

    Unfortunately I was scared of failing. I was afraid of what people would think. I was ashamed at what other franchisees, ones I put in business, would think of me. I couldn’t even think of facing my family. All lame excuses for not taking responsibility. Maybe a hard swift kick you-know-where would have helped.

    Did I mention that I previously ran the franchise company where I failed as a franchisee? Did I mention I was elected by fellow franchisees, President of the National Advisory Council? Did I mention that I owned and operated five franchise units?

    If I had clearly understood the implications and consequences that were looming on the horizon and if I was able to get my big ego out of the way and address things head on, maybe I could have survived. Maybe I could have at least implemented an exit strategy that would have, in some small way, paid back the loyalty and support of my employees, family and friends.

    In the end, I may not have survived because it may very well have been too late when and if I finally took action and responsibility. But maybe I could have at least exited with some dignity. Also, I could have saved many innocent people a great deal of hardship, embarrassment, wasted effort and ill-spent resources if I did face reality. This includes my family, my employees and yes, my franchisor; all who believed in me.

    Yes, it was a tremendous learning experience but not one I would bestow or wish on anyone. Now, all I can do is to offer my experience to anyone in the franchise industry that needs assistance. As we continue in the realms of economic uncertainty, I’m certain already difficult situations have been compounded but I’m confident a snap back to reality could only help. If just one franchise business is saved from the consequences of failure, then we’ve made progress. Progress we’ll continue to build upon.

  • Paul,

    Wow – inspiring insights.

    Indeed, ego is what every entrepreneur should “manage” – our success and failure are indeed depending on our ability to manage our ego.

    “I may not have survived because it may very well have been too late when and if I finally took action and responsibility” – that pretty much sums it all up.

    Alas, many of us blame the economy, the franchisor, the franchisee, the system, etc. etc. but never really introspect. Most of the time, it’s us who to blame. We are not swift enough in responding to bad situations, and we “like” and “enjoy” drowning ourselves in sorrow, frustration and depression.

    Anyway, I’ll write more about this on my biz blog, http://www.noobpreneur.com

    Thanks for sharing, Paul!

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