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Craig Feigin | Franchiser Beware
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20 Aug Franchiser Beware

Those looking to enter a franchise may be tempted by what seems like a sure
bet, but there are numerous pitfalls that can catch first-time
business-owners with their proverbial pants down. Often franchise marketing
will provide an image of hassle-free start-up combined with the certainty of
profits driven by the brand; some even going so far as to describe
themselves as “turnkey”. While some of this marketing may be in theory
true, in practice things often turn out much differently. Many fail to take
into account that their turnover may be adversely affected by marketing
campaigns undertaken by head office, in some cases equipment provided may
also be sub-par. A compelling tale of misfortune for one particular
franchisee for an Australian pizza chain, Eagle Boys, paints a picture of a
company more interested in chasing franchisees for fees instead of providing
the support agreed upon as part of the franchise deal.

In this particular case the franchisee in question, Andrew Kynaston, alleges
that he was provided with second-hand equipment, not provided with the
promised advertising, and had his turnover fluctuating constantly due to
Eagle Boys loss-leading marketing campaigns and frequent menu changes.
Andrew says that in response to cash flow problems generated by all this,
Eagle Boys continued to aggressively claim its franchise fees even when its
equipment failures threatened the business. While he was able to at one
point cut a deal with head office to reduce his franchise fees for a set
period, he eventually had no choice but to close the business down. Andrew
subsequently went bankrupt, lost his home and marriage, and his son started
having problems in school on account of the stress at home. Even now five
years on, he still lives in a caravan park.

These kinds of stories serve to remind us that while franchises are often
attractive to those wanting to start their first business, it’s just as
demanding, stressful, and prone to failure as any other. While it’s good to
be aware of the high risk and demands of business, it’s also essential to
always be skeptical of marketing. Like the old adage goes, if it sounds too
good to be true, it probably is. Promises of a business being “turnkey”
often either come with a lot of caveats or simply don’t deliver, the
franchise perfectly capable of finding some reason or another for profits
not being as expected. Good to keep in mind as well is that no matter how
friendly the marketing, and how nice the reps seem, you’re entering into a
profit-driven business deal. Just like any business deal things can turn
sour and once they don’t need to sell you anything that friendliness and
understanding may disappear when things turn tough.

This is not to say that entering a franchise is a bad idea, or that most
franchises are simply sharks looking to prey on the unwary. Naturally it’s
in their interest to ensure you succeed so any good brand will do their best
to support you and smooth out any problems you may be having. There will
also always be extreme cases like these where people have lost it all or run
into seemingly uncaring or mismanaged franchises. Rather than being put off
by these cases however, they should rather be used simply as cautionary
tales and a reminder to thoroughly research your potential franchise.
There’s nothing wrong with being skeptical, asking a lot of questions, and
investigating existing stores if possible. It only makes sense to do the
appropriate research and not simply take the word of the other party at face
value. As Alexandre Dumas wrote, “In business, sir, one has no friends, only
correspondents.”.

Source:
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11697200

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