There are many restaurant entrepreneurs who have started their business by purchasing franchise as probably their view of advantages of franchise startup and fast process to start with. Because all knowledge and management systems are already prepared plus, you don’t have to spend time building your own brand as it is already a well-known brand. The story should go on the way of success, smooth and profit that lies ahead.
But a short period of starting the business, it unfortunately turned the business instead of ‘booming’ to ‘terribly broke’. This case was counted to be seen at multiple times as truly ending of the dream of new entrepreneurs. But we are able to prevent this from happening in case that you understand the 5 precautions for doing franchise business before hands as the following.
- Wrong selection of franchise
Selecting of good and quality franchise bring us to the path of success but selecting the wrong one could turn the way into failure.
The cause of selecting a wrong franchise with no quality could be a result of entrepreneur decision of appealing franchise that comes on trend or new distinctive idea at that moment. But many may forget a term of the quality of the franchise realistically, a good franchise is that the Franchisor must have a ‘good system’ to help the franchisee (franchise business partner) succeed altogether.
This comes with operating system, quality control management system of franchise, marketing system etc. Good support system for entrepreneur will never let the process go on its own whether it has already been paid for investment or provided the basic Know How. These are counted as the part of quality of franchise business of restaurant that entrepreneur should be concerned of and precisely determined before making his decision. The thing to take in concern of selecting a good franchise similarly to a soulmate is to make a precise selection on good franchise with quality and suitability to us to get to the path of success waiting ahead upon us, but selecting a wrong franchise is only a failure waiting ahead and it could give you a bad result that hurt your investment so bad and all alone.
- Operation procedure, vague and complicated contract of franchise
Operation procedure is a heart of franchise business compounding with content, objective and explicit process which are easily understandable.
‘SOP’ (Standard Operation Procedures) is a heart of franchise business as source of knowledge and operation manual which supervise and control the work for us to deliver products and services to customers with quality A good franchise practice manual must contain both content and objective including clear and understandable process to follow.
Whether in a term of training tools to help increasing efficiency and productivity of employees to have quality on a regular basis with consistency reduce errors that may occur. As the skill and the quality have been improved with less error, help in the matter of better number on sales and reducing costs.
Moreover, good and well-defined SOPs can also help entrepreneur launching new restaurant with grounding of operating system within and smooth daily operations including an advantage to help business growth, frequent update, support training, quality inspection system to measure a result very well.
Distinct franchise contract is a protection of dispute that may arise and also a guarantee of our investment.
Although franchise contract is not account of well-defined legislative terms, franchise owner and entrepreneur who received the right of franchise need to set it clear to avoid a cause of upcoming dispute or to maintain fairness between both of them when the purchase has already been made.
Whether it is a matter of style of franchise, location, compensation of rights, scope of trademark utilization, intellectual property, period of contract, contract extension, franchise fee, terms & conditions and duties are mutually exclusive between the owner and the entrepreneur to use the right of franchise, whether before or after launching and so on. The important things above are what entrepreneur should take into account.
These include details of duties of both parties to each other for example, supporting in various fields – franchise owner is responsible for buyer of the franchise. At the same time terms and conditions that the buyer has to follow, how it negotiable and fair for example of request of loyalty fee in the account of percentage with possibly other fees or they need to purchase product from franchise owner or specific supplier that has been mentioned etc. Such good contract of franchise is not only henceforth a protection of dispute but also a part of guarantee for our investment.
- ‘Broke’ consequence of wrong location to meet the need of target customer
Selecting a location is very important, situated in a crowded place where massive number of people are
Entrepreneurs who do not have much experience may think that they choose a franchise that has a large number of branches possibly become successful, but that’s not always the same case. How quickly the franchise will pay back the cost depends on the number of customers who come to use the service. Therefore, location is significantly counted as importance that restaurant is located at spot where there will be customer traffic for us or not. The initial question was that the location is crowded and people commuting a lot may not be enough, but another importance is that location is supposed to locate in an area of our target customer as well.
For example, price of our restaurant menu is quite expensive, restaurant needs to be in an area where the customer has purchasing power with their potential to be our customer or target group that attract to our food trend category. The owner of franchise is best to know how much important of location of restaurant and detailly stated in the contract for permission in helping to select a location for franchise entrepreneur to avoid failure that could affect to franchise brand and to increase a chance of success.
- No charge of loyalty – low cost but high risk
International standard of franchise often charges loyalty Fee
Because of expense of management system development
to support members who purchase a franchise.
Running franchise business certainly must charge for a number of fees from the buyer of franchise rights in addition of Franchise Fee or Entrance Fee, there also combines with monthly loyalty Fee. In contrast, there are franchises that only charge an entrance fee with no request of loyalty charge, which it can be said for the difference of both category of franchise which specifically have their own advantages and disadvantages. Some people might think that no request of loyalty charge is one of the benefits as it will never cost in long run of the business.
In deep explanation, request of entrance fee is the cost of using the right to operate the business under the franchise brand, while the loyalty fee is to be paid on a regular basis as the continuing privilege. It must be paid to the franchise owner as the cost of developing or operating a management system to support members in simple terms, it is similar to taxes or common fees. In addition to the loyalty Fee, some franchises may have a separate monthly marketing fee or advertising fee as well with significantly difference of each own.
World standard franchise has quality of administration management that used in every branches
Businesses or brands with international standards often request for loyalty fee in order to provide turnover the fund in management and support to franchisees. It produces a quality management system to any branch service with the exact standard of food or service including buyer of franchise that does not have to do much marketing or advertising because the franchise brand has already managed this part for various chances of success highly as its operation of system, standard and reputation.
While a franchise brand that charges a one-time entry fee with no request of loyalty fee has the advantage of low cost of business startup with no additional cost in long run. But it may not have standard control management system and supporting system to buyer. With out potential factors like wrong location, no control of quality to every branch may terribly cause to the brand itself and members of franchise. As the frequent mentioned cases on news can be called as risk to entrepreneur who thinks of running franchise to take it in mind.
- Lack of all readiness, support plan and long-term marketing plan
It doesn’t mean that every franchise will be successful,
Many brands of franchise are failing as the main problem is lack of readiness and long-term plan to other subjects
There are a variety of factors that make franchise to be ‘boom’ or ‘broke’ which is primarily due to a standard system and a long-term action plan, although franchising is seemingly to be a ‘shortcut’ to help entrepreneur succeed faster, energy and time saving for anyone who are starting to run a restaurant business. As they would get both right to run the business and Know How of recipes of various brands that are well-known and receive popularity for their own branches.
They do not need to invest money to launch the branches at all as an advantage of franchise owners. But not every franchise will always succeed as there are many franchise brands that went on for sometimes and finally failed. This may have been caused by the lack of readiness or long-term plans in various fields for example, the franchise owner may have sold his brand with lot of income and a brand became popular until someone contacts to buy a franchise or thinking of franchise business without development of standard system. It remains no standard of management system controlling the quality of franchise which has been sold to members even with good ‘SOP’. Moreover, the absence of conclusive supporting plan to buyer combines with the lack of readiness, concern of operation process and long-term marketing plan, this could be said that its path of success for both entrepreneurs is just deadly falling off your horses.
All of the above is what people who interested to start franchise business particularly, franchisee who should consider precisely beforehand to avoid the failure that they did not expect instead of success.
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