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best practices: Asked & Answered: A Failing Franchise

best practices

Asked & Answered: A Failing Franchise

September 27, 2007

QUESTION: Fifteen months ago, my husband and I bought a women's fitness center through a franchise resale. Being novices to the business world, we hired a small-business consultant. The individual didn't do his job properly and the owner was able to sell us the existing franchise through misrepresentation and inaccuracy of numbers and facts.

The business is on a decline. We've occasionally had to add personal monies to our business account. We have a 7-year business loan and a 5-year lease that we can't break. Besides telling me that novices with no money have no business buying a business, do you have any advice?

Lisa, N.J.

ANSWER:  All is not lost. As a franchise owner, you've got some unique options available to you.

The first, immediate course of action is to call the franchise's headquarters to tell them you're in trouble. A franchise has a vested interested in making sure its cookie-cutter replicas succeed. After all, it wants to collect royalties from each operation, and build its reputation on each carbon-copy stores' success. "Don't have this pride, or think they are not going to care," says Ben Litalien, who teaches franchise management at Georgetown University's School of Continuing Studies. "There are lots of things a franchisor can do to rally resources around an underperforming unit so it can reach break-even or profitability." The franchise might provide operational advice, marketing expertise, advertising help, or some other aid that boosts your bottom line, he says.

The next step is to call other franchisees, either in the area or in other markets, and ask those owners to share best practices, from how they get customers to walk though the door to how they manage employees.  Also, try to get a sense from other franchisees about how much they pay for fixed expenses, such as their leased space. If they pay considerably lower, that information might help you renegotiate your lease with your landlord. In any event, consider telling your leaseholder that business is down, and you need a reduction in the price, advises Lori Kiser-Block, president of FranChoice Inc., a franchise-consulting firm in Minneapolis. "The person who owns that building does not want the business to fail," she says.

And then lastly, a consultant can help — but make sure your small-business advisor is well-versed on the restrictions, royalties and other ropes of the franchise industry. It's quite possible the consultant you used the first time wasn't trained in this area. "Franchising is a speciality," Litalien says. "If you were learning French, you wouldn't hire a Spanish teacher, even though they're both based on Latin." A good place to find more information on the franchising community is the International Franchise Association, a membership group of franchisors, franchisees and suppliers.

(Got a question? Send us an email at Editors@smSmallBiz.com. Due to the volume of questions we receive, we are not able to answer all questions. Questions that are selected for publication may be edited for length and clarity.)

Last 1 Comment
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