The top 5 reasons for franchise failure

What are the top 5 reasons for franchise failure? Well, it depends on who you ask. Some people even list the “coattail affect” as a reason that a perfectly sound franchise might go belly-up. The fact is, there are almost as many reasons for small business success or failure as there are small businesses. Some of the most common reasons for failure
  1. Lack of experience Yes, franchising is where many first-time entrepreneurs turn specifically because of a lack of experience. A franchise with a solid system in place will help, but an individual with no real-world business ownership, marketing, cash management, or personnel management need to become students of these subjects. Franchising is all about buying a business model, not a business. Franchising can help you get over the initial experience barrier, but will not remove the need to educate yourself
  2. Insufficient capital The old adage “it always takes longer and costs more” is still in effect. Murphy’s law has not been repealed. Before you launch a business, you need a business plan. Once you launch your business, I promise it won’t go according to plan. If you go “all in” on a business, remember what happens to all the players at the table but one.
  3. Poor location Yes, its trite, but “location, location, location”! For most b2c (business to consumer) businesses is a must for success. It’s an unfortunate truth, however, that locations change. Your A+ real estate can be affected by an anchor closing, area trends changing, or construction, just to name a few.
  4. Unexpected growth Yep, growing too fast is a “thing”. We all have heard of the “Shark Tank Effect”, right? Well Danny Grossfeld can tell you all about it. His product, basically hot coffee in a soda can, got such a boost in business from its appearance on Shark Tank that it went out of business. An acquaintance of mine ordered the product right after the show aired; after 2 or 3 rounds of “we are working on it” type emails, the company closed down production, all because they got too many orders.
  5. The “coattail effect” When your profitable franchise fails simply because other franchisees have failed this is known as the “coattail effect”. Actually, this has no business on a “top 5 reasons business fail” list. The coattail effect is actually a political effect, also known as down-ballot, but apparently this question is on a lot of tests right now and Franchise Beacon has seen a surprising amount of traffic for the question. So, there is your Business 110 Chapter 5 quiz answer.

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