Why More Small Businesses Fail To Franchise

01Imprese franchising

16/10/2018 - According to the SBA, there are 30.2 million small businesses in the United States employing 58.9 million people. Small businesses account for 99.9% of United States businesses and there are 287,835 small business exporters. Despite these numbers, approximately 300 businesses franchise their business each year.

In order to understand why more small businesses fail to franchise their business, I spoke with a small business expert, Janet Attard, founder of BusinessKnowHow.

Janet Attard is the founder of the BusinessKnowHow.com small business website. She’s the author of several small business books and has been an online information provider for 30 years.

Q. Janet, how long have you been dealing with small business owners?

A. I’ve been dealing with small business owners and running a small business myself for more than 30 years.

Q. There is a huge gap between the number of small business owners in the United States and those who decide to franchise their business. Can you tell us some of the reasons why?

A. There are many reasons more small businesses don’t franchise. One is that many businesses don’t really lend themselves to franchising. Someone who starts a small service business or restaurant, may not really do anything that’s truly unique or proprietary. The business exists and succeeds because the owner is good at networking, offers good customer service, has a friendly staff, inexpensive labor, good location, good tasting food (if its a restaurant) and loyal customers. But they really haven’t built a brand or identity that could be easily replicated and transported to multiple locations. Also, many haven’t systematized their operations. If your business operations aren’t systematized they are going to be inefficient and difficult to teach.

Q. Are there financial reasons?

A. Many small businesses generate little or no profits. The business can have a steady stream of customers coming through its doors, but the operating costs can be so high that the owner-operator makes a relatively modest salary for himself or herself, and there’s little or no profit at the end of the year. Because a franchise is a form of business opportunity, franchising a business means having to learn about and comply with state and federal franchise laws. That’s going to involve hiring a franchise attorney. The lawyer will have to draw up required legal documents and create and negotiate contracts with potential franchisees. They may also need to review sales literature to be sure that complies with franchising and business opportunity laws.

Q. What about the operational aspects of the small business?

A. Franchising is a different kind of business compared to the storefront or service business they’ve been running. In most cases, it requires different skills the business owner may not have, which can cause the business owner to incur significant expenses to create and operate the franchise operation. For example, instead of selling a product or service to a consumer who wants to buy a meal, have someone watch their children, or take care of their aging parents, the potential franchisor is now selling a franchise opportunity in order to make money. That requires different marketing and sales skills than getting consumers into, their salad bar and upselling them on a healthy shake to go with lunch. Unless the business owner happens to be a really good salesperson, they’re going to have to hire sales help.

The marketing methods many small business owners have been using to attract customers to their establishment aren’t likely to work for finding franchisee prospects. Instead of local ads, coupons and referrals, that can drive customers to their establishment, the business owner is going to have to learn where and how to advertise their opportunity, and probably buy leads, as well. They’re going to need professional sales literature to provide prospective franchisees and may exhibit at trade shows. What they won’t know at the start is what percentage of leads turn into buyers, and how their success rate compares to other new franchises. So planning their marketing budget is going to be difficult at best.

Janet, thanks very much for presenting the reasons why more small businesses don't view franchising as the right strategy to follow.

Ed Teixeira



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