5 Deadly Sins That Can Wreck Your Franchise – and How to Avoid Them
Understanding the numbers, knowing your operation inside and out, and being the best at one thing at a minimum are keys to survival
The food and beverage industry is a tough game. Sixty percent of restaurants don’t make it past their first year, and 80 percent go out of business within five years. Those are hard odds.
Franchising takes some of the risks out of the equation by giving you a proven model to work with. But being a franchisor with a proven model under your arm doesn’t mean you’re suddenly bulletproof or immune to the laws of economics. If you start making unforced errors, you’re going to fail.
Here are the five reasons most people fail as the owner of a franchise. Avoid these deadly sins at all costs:
Sin 1: Financial complacency
In your personal life, you likely take a hands-on approach to finances. Your business requires the same attention. Don’t get complacent, and don’t assume that just because money is coming in, you can set-it-and-forget-it. Dig into the financials.
You might have top-line revenue of $900,000, but are your labor margins higher than they should be? Is your cost of goods (COGS) steadily increasing because your bar manager bought 50 different types of wine because you don't have an inventory system that can keep track of what brands you already have on hand? Maybe you haven't done a request for price (RFP) in more than five years, so you don't even know if there's a competitive supply that could be saving you money.
Don’t let this kind of complacency set in. It can chip away at that top line until suddenly, the bottom line isn’t looking so hot.
Sin 2: Operational obtuseness
You need to know your business inside and out. This doesn’t just mean knowing your COGS and SKUs, it means knowing how the business operates, and how to recognize if something’s off. If cost of goods is supposed to be 23% but it’s showing 40%, or if there’s variance in inventory, you need to know exactly where to look to find the discrepancy.
Is this your first franchise? If so, it’s a good idea to know how to operationally run every aspect of the business. Sure, you might not need to be washing dishes, slinging drinks, or ordering paper towels during normal day-to-day operations, but if someone calls in sick or just doesn’t show up, you need to be able to jump in and keep the machine rolling. The take-home message here? It pays to know your business’ operations inside and out.
Sin 3: Poor hiring choices
This next tidbit might seem obvious but, surprisingly, it bears mentioning: Hire good people. This is your business. You want it to succeed, which means you should hire the absolute best people to run it. Don’t hire the first person who applies for the job that passes a background check and has a pulse.
Also: Hire for your weaknesses. If you are an introverted, detail-oriented person who’s comfortable with the behind the scenes aspects, make sure you hire someone who has more of an extroverted, front-of-house personality. If you’re a big picture, ideas person, hire someone who’s a “let’s get things done” person, and so on. Hire people that will complement what you bring to the business with what they bring to the business.
Sin 4: Myopic risk management
Beyond having contingency plans in place in the event of a natural disaster, a pandemic, a supply chain disruption, or some other issue, franchisees need to be like chess players. They need to see the entire board, think multiple moves ahead, and imagine multiple possible scenarios that might come to pass.
An impact on a seemingly unrelated industry can have a domino effect that ripples through industries B and C and whacks you upside the head, even though you’re in industry D. In practical terms, this means that if you’re a hot dog vendor, and you’re only concerned about what affects the hot dog and the bun, you’re not thinking broadly enough. Expanding your field of vision will help you better anticipate unexpected curveballs so that you can pivot and adapt.
Sin 5: Mediocre offerings
Do yourself a favor, and do at least one thing better than other people. You’ve got to have at least one thing that crushes it, whether that’s a particular menu item, your customer service, your ambiance, or something else. That special something is how you get customers and keep them coming back.
Put another way: Know what you do well and execute on it. If onion rings are your thing, sell the world’s best onion rings. If a killer beer selection is your calling card, make sure you’re stocked to the nines. But don’t try to be all things to people if it means doing everything “average.”
Related: The Top Food Franchises of the Year
Failures do occur in the food and beverage industry, but they don’t have to be inevitable. By avoiding these five deadly sins, franchisees can keep their businesses on the up-and-up and in the black, so that they can successfully reap the rewards of their investment.
Can we get an amen?
Entrepreneur Leadership Network Contributor