Article - Why Businesses Fail and How To Avoid it
According the SBA more than half of all new business
will fail within their first four years of operation.
In contrast, over 85% of all new franchises will survive
for more than 6 years. While no new business venture
comes with a gurantee for success these statistics do
show that chances of success with a franchise startup
are considerably greater than an independent startup.
Here are some of the typ reasons why business fail and
how a solid franchise can help entrepreuenrs avoid these
1. Under Capitalization
A common fatal mistake for many failed businesses is
having insufficient operating funds. Business owners
underestimate how much money is needed and they are
forced to close before they even have had a fair chance
to succeed. They also may have an unrealistic expectation
of incoming revenues from sales.
A franchisor has launched several new franchises,
sometimes hundreds and will have a firm graps on the
initial investment and operating capital required to
succeed with its model.
2. Poor Management
Many a report on business failures cites poor
management as the number one reason for failure. New
business owners frequently lack relevant business and
management expertise in areas such as finance, purchasing,
selling, production, and hiring and managing employees.
A strong franchise organization will place great emphasis
on training its franchisees to be strong managers of
their business including day to day operations, management
of staff and finances.
Whether inexperience lies in dealing with the intricate
functions of all business or in the business niche itself,
a lack of experience is a top reason why many new businesses
A franchise will provide initial training as well
as ongoing training and support to help fill this potentially
fatal void of specific business and industry experience.
4. Poor Location
If your business is a retail, food or other walk-in
or drive-by type operation then the old saying "location,
location, location" is very true. Choosing the
wrong location for your business can be a fatal mistake
regardless of all other positive factors.
A franchise will help its franchisees carefully research,
choose and negotiate the right location for the business.
In addition franchises are generally preferred by most
premium location malls and shopping centers.
5. Poor Marketing and Advertising
Even to the experts advertising and marketing often
comes with a bit of guesswork. For a small business,
especially one in its start up phase wrong guesses in
advertising and marketing can be costly and ultimately
force a business into failure.
A strong franchise system will provide its franchisees
with tried and true advertising and marketing strategies
and collateral taking most of the guesswork out of this
process. Franchises will be provided with proven methods
for getting the right message to its potential customers.
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