Beware of High Goal Setting Figures in Franchising Companies

Have you considered buying a franchise, wishing buy a franchise which is expanding and growing fast? You know; “get in on the ground floor” and all that jazz? If that is the case, I’d say be careful what you wish for – and, along that line of thinking, I’d also advise you to be weary of forward looking expansion projections from any particular franchisor you’ve been shopping and considering as well. Let’s discuss this and then you’ll see my point.

Okay so, did you know that only 1 in 5 new franchising companies survive the first 5-years of franchising? Even those who do survive often get acquired after that by a larger company, which totally changes the game for all the franchises team members in the system. How do I know all this you ask? Well, before retirement I was a franchisor founder, and I’d learned a lot along the way. One of the most important things I had learned was that while it is fun to grow fast and be on top of the world, it also creates a tremendous number of headaches.

The most challenging aspect of rapid expansion rates and setting goals too high is that you never have enough capital the keep up with it. Franchisees deserve the support they were promised, and there is no excuse not to deliver, so you work like hell to do it all. Now then, as a franchise buyer, you need to know this because it is very easy for a franchisor to get ahead of themselves, and therefore it can make life quite stressful for the franchisees and team members.

Just because a franchisor is expanding really fast doesn’t mean they will be there tomorrow, in fact if they expand too fast, often that is an early signal of their eventual demise, especially if they are less than adequately capitalized. It only takes a few lawsuits, or a few bad quarters, and the whole thing implodes. I’d be more afraid than excited, if I saw that a small time franchisor was projecting incredible growth. Not long ago, I was talking to a franchisor in Colorado, she had a great new franchise system, and she explained to me that she was growing at well over 700% per year.

Indeed, as a former franchisor I thought about that, and although I didn’t say anything, in the back of my mind I was asking myself it she’d still be around, or if the franchise system would still be in existence in the next couple years. If I was a betting man, I’d bet against her, only because I know the reality. Indeed, I know it is possible for an entrepreneur diehard to scramble and make it through those tough times, I did, but the intensity behind the scenes is quite forgiving, one mistake, and you’re history.

Indeed, I just hope you as a franchise buyer will consider some of these words of wisdom, and be careful whom you get bed with. So, please consider all this and think on it.

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