franchises fail Tag

Dealing firstly with whether it is possible to franchise your business.

If your business:

  • was only established in recent years,
  • has not been tested over time in a range of economic conditions,
  • is not a respected and recognizable brand in your local area,
  • does not utilize  operational documentation relating to the processes employed in that business,
  • is not strongly supported by employed managers who are fans of the business,
  • does not utilize a patent or other assets that other potential business owners would value and
  • does not produce a healthy profit after factoring in the franchisors anticipated administration and promotions costs

then you are probably not ready to franchise.

Assume firstly that the hypothetical Franchise System is a properly run Franchise System. Of course this is not always the case. In this hypothetical system, what then are the primary risks to success? It should be expected that the reasons for failure in small business are in many cases the same as the reasons for failure of a Franchisee within a franchise system. The failure rate for franchised businesses  is perhaps less than for private small business as a whole because while some applicants would not be accepted by any competent franchisor, there is no restriction on any punter starting a business. It must be accepted that some people are not suited to owning a business. What however are the most common reasons for failure within a franchise system. I recently followed a panel of advisors who considered these to be the primary causes of failure:

The Australian Competition and Consumer Commission has instituted proceedings against Sensaslim Australia Pty Ltd (Administrator Appointed) (Sensaslim), Mr Peter Clarence Foster, Mr Peter Leslie O’Brien, Mr Adam Troy Adams and Mr Michael Anthony Boyle.

The ACCC alleges that Sensaslim and several of its officers engaged in misleading and deceptive conduct and made false representations in relation to the identity of Sensaslim officers, the Sensaslim Spray and the business opportunities offered by Sensaslim.

The alleged conduct includes:

· Failing to disclose the involvement of Peter Foster in the business of Sensaslim;

· Falsely representing that the Sensaslim Spray was the subject of a large worldwide clinical trial when in fact no such trial was conducted;

· Falsely representing that Dr Capehorn, an obesity specialist, gave unqualified support to the effectiveness of the Sensaslim Spray and the purported clinical trials;