6 Causes of Failure of Business Franchises

Many people think a franchise business is a definite step toward success. But in fact, many reasons that make the franchise did not end as expected.
In the article quoted from Investopedia, Tuesday (01/16/2012), we'll look at some considerations that you can examine before plunging directly into the franchise business.

1. Initial capital and franchise royalties high enough
Initial capital and franchise fee income tenants can greatly affect the franchise business. For example, if you want to open a McDonald's franchise, you have to have its own location (rental or owned), not to mention the franchise royalties of about Rp 405 million (U.S. $ 45,000) to hold the franchise rights for 20 years, after his time runs out then it could be extended.

If the count is calculated in total, the costs you have to spend to open a McDonald's fast food restaurants ranging from Rp 4.5 billion to USD 14.4 billion.

The most troublesome is that the franchise fee to be deposited per year. Each year, the franchisee must pay the holder of 12.5% ​​of turnover to the franchisor. So, regardless of your turnover or as good as any business, you will continue to be bound by these rules.

The annual rent is a standard requirement in the franchise world. In fact, Burger King asked for an additional 4.5% if the franchise fee of Rp 450 million, the same as Dunkin 'Donuts is requesting an additional 5.9% for the franchise fee in the range of USD 360-720 million depending on location.

Reduced salary, meal allowance and tax, can be seen that holds the franchise license is not as easy as it seems.

2. Expensive raw material costs

For you can stay in business, most franchise owners to force the licensees to purchase raw materials from a supplier that usually there is a relationship 'special' by the franchisor. Usually, the price set by the supplier is higher than the market price.

In fact, some fast food franchise owners set a 5-10% higher than market prices for products such as vegetables, tomatoes or other raw materials. In fact, the vegetable remains of vegetables whose prices are usually about the same, but it became one of the other ways to boost the profits of the franchisor.

Never once you cancel the order raw materials from the franchisor, because it's not impossible to break your contract in the middle of the road so that you can no longer be in business.

3. The lack of funding

Most of the franchise license holder does not have access to funds is good. So, if you need additional capital, mostly franchised licensees had to pay his own pocket. In a way, the franchise holder of the license depends on yourself.

Some franchise owners know this so well that it provides an option for the franchise fee payments, capital, raw materials and equipment to start a franchise. Situations like this are usually more attractive prospective franchise licensees.

4. The lack of control locations

Some franchises have rules for not too much to open his shop in a town in order to avoid saturation of the market and earnings plummeted. However, many franchises are opening stores in a city as much as possible in order to boost sales.

That is why it is not something weird if you look at the five outlets within a radius of 8 km McDonald as the company tried to scoop up any money in the region. Franchise owners are able to gain a lot, but the suffering is the licensee of franchise outlets, because every surface in the franchise at the same location, then the turnover could fall by half.

5. Less creative

Sebauh franchises typically require uniformity. Starting from the store decorations, billboards, product offered must be equal to the maid's uniform. For people who like creativity, it can be frustrating.

So, if you are used to being your own boss, this uniformity may be quite difficult. Maybe you are not fit for a franchise business.

6. Franchise owners are less familiar with new areas

You'll often hear that the key to success in business is location, location, location. Because the location is very mentukan success or failure of a business.

In essence, if you can not find the right location to open a franchise, you will definitely difficult, because the franchisor did not get much help you in determining the location.

Pizza franchise for example. You can not easily open a pizza shop in a pretty crowded area residents. But, you also must consider the age at that location.

One great if you open a pizza shop in the crowded but its content is the parents. You better find a more quiet environment, but the contents of all young people.
Research like this is usually not owned by the franchisor. The franchise license holder's job to do this research alone without the help of the central office.

Conclusion:
Running a franchise business is a serious decision that should be undertaken with caution. Before you hire a franchise, learn a lot about the company being targeted, as well as product and location. Because even with the products and good location, you can not necessarily make a profit. So, make sure adan know the risk before opening a franchise.

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