When entrepreneurs consider buying a franchise, they’re often attracted by impressive statistics about success rates significantly higher than independent startups. While franchising does offer many advantages over starting from scratch, it’s important to understand that franchises can still face challenges. Research suggests that a meaningful percentage of franchises struggle within their first three years of operation, despite having established business models behind them.

Understanding what can go wrong with franchise operations is essential for making an informed investment decision. By recognising potential pitfalls early, you can take proactive steps to navigate around them and position your franchise for long-term success.

The Myth of “Turnkey” Success

One common misconception in franchising is the idea that you’re purchasing a guaranteed success formula. The notion that you can “just follow the system and profits will flow” is appealing but oversimplified.

Many franchise consultants and industry experts point out that successful franchisees don’t view the business as something they can set up and then operate on autopilot. The franchise system provides a framework and proven processes, but implementing these effectively still requires dedication, hard work, and business acumen.

This understanding helps us address our first major challenge facing franchise operations.

1. Insufficient Due Diligence

Perhaps the most preventable cause of franchise difficulties is inadequate research before signing the franchise agreement. Some prospective franchisees become enthusiastic about a concept, get impressed by marketing materials, and don’t conduct thorough investigations beneath the surface.

Industry experts consistently recommend speaking with existing franchisees before making an investment decision. Franchisees who skip this crucial step often discover that profit projections might not align with real-world experience.

Warning Signs to Watch For:

• • Limited access to existing franchisees. The most transparent franchisors will provide access to their entire network, not just a few selected top performers.
  • Disclosure documents with vague financials. Clear unit economics from established locations should be available for review.
  • High franchisee turnover rates. Understanding how many franchisees have left the system in the past three years and why can provide valuable insights.
  • Reluctance to discuss litigation history. While some legal disputes are inevitable in business, patterns of litigation from franchisees warrant careful consideration.

What to Do Instead:

Commit to speaking with multiple current franchisees and, if possible, former franchisees. Ask pointed questions about:

• • Actual versus projected earnings
  • Hidden costs not obvious in the disclosure documents
  • Quality and responsiveness of head office support
  • How long it typically takes to reach profitability
  • Their overall satisfaction with the franchise system

2. Undercapitalisation

Even well-researched franchises can encounter difficulties because they simply run out of money before achieving profitability. Industry data shows that insufficient working capital is one of the leading challenges for new franchise operations.

Some franchise disclosure documents may present working capital requirements that reflect the minimum needed to open doors, but they might not fully account for what’s required to build a sustainable business. 

The Rule of Thirds

Experienced franchise consultants often recommend the “rule of thirds” for financial planning:

1. 1. Take the franchisor’s working capital estimate
   2. Double it
   3. Add another 50% as emergency reserves

This formula might seem conservative, but industry studies consistently show that undercapitalisation is a leading cause of business challenges. Having too much cash rarely creates problems; having too little frequently does.

Beyond simply having sufficient capital, successful franchisees need effective cash flow management skills. Weekly cash flow forecasting is particularly important during the critical first 18 months. Franchisors who provide detailed cash flow templates and training demonstrate their commitment to franchisee success.

3. Location Considerations

For retail and food service franchises especially, site selection plays a crucial role in business performance. Location issues can present significant challenges for franchisees despite having a strong concept and excellent operational execution.

Location Factors to Consider:

• • Sites where previous businesses have cycled through quickly
  • Locations with visibility or accessibility challenges
  • Areas where the demographic profile doesn’t align with your target customer
  • Clustering of franchise units in close proximity
  • Rental costs that would require exceptionally high sales volumes to support

Another location-related consideration is territory planning, when new units open in close proximity to existing ones. This situation can occur as franchise systems expand and may impact existing locations’ performance.

Many franchise industry experts recommend carefully reviewing how territories are defined in franchise agreements. Franchisees who experience the strongest success often operate in well-defined territories that provide sufficient market potential without excessive internal competition.

4. Training and Support

The quality of initial and ongoing support varies across franchise systems. While many provide comprehensive training and continuous guidance, others may not deliver the level of support that franchisees expect or need.

Industry studies show that franchisees who receive thorough training and consistent support generally outperform those who don’t. Prospective franchisees should carefully evaluate the training programmes and support systems before investing.

Support System Considerations:

• • Length and depth of training programmes compared to industry standards
  • Ratio of field support staff to franchisees (higher ratios generally indicate better support)
  • Experience level of support staff in actually operating the business
  • Balance between technical systems training and business management education
  • Availability and cost structure of ongoing training and support visits

Interestingly, franchise systems need to strike a delicate balance between providing structure and allowing appropriate flexibility. Some franchisees find themselves caught between insufficient autonomy to adapt to local market conditions and overly rigid compliance requirements that may not always add value in every market.

The healthiest franchise relationships typically feature:

• • Comprehensive initial training covering both operational and business management aspects
  • Regular field support visits with actionable feedback
  • System-wide learning where best practices from successful franchisees are shared
  • Practical support for local marketing execution, not just generic materials
  • A franchisor culture that values franchisee input and adapts the system accordingly

5. Franchisee-Franchisor Alignment

The relationship between franchisee and franchisor is fundamental to franchise success. While their interests should theoretically align, challenges can emerge when expectations or business models diverge.

A healthy franchise system maintains focus on ensuring that franchisees succeed, recognising that franchisee profitability drives long-term system growth and sustainability. Franchise industry analysts suggest that evaluating the strategic alignment between franchisee and franchisor goals is one of the most important factors in selecting the right franchise opportunity.

Some franchise systems have evolved toward models where franchisors aim to maintain capital efficiency while maximising system growth. When evaluating franchise opportunities, it’s important to understand how the franchisor generates revenue and whether those revenue streams are directly linked to franchisee success.

6. Franchisee Compatibility

Not everyone is naturally suited for franchise ownership. The role requires a specific temperament and skill set that balances entrepreneurial drive with system compliance.

Many franchise consultants note that misalignment between a franchisee’s personality and the requirements of franchise ownership can create significant challenges, even within successful franchise systems.

Successful franchisees typically need enough entrepreneurial spirit to work diligently building their business, but also the ability to follow established systems. Finding this balance is essential for long-term satisfaction and success.

Before investing in any franchise, consider these questions:

• Are you comfortable following established systems, even when you might have other ideas?
• Does the level of creative control in this franchise match your preferences?
• Are the working hours and physical demands of this franchise compatible with your lifestyle?
• Do your management and interpersonal skills align with the business requirements?
• Are you comfortable with the decision-making boundaries inherent in franchise relationships?

7. Local Marketing Effectiveness

Many franchisees discover that national brand recognition doesn’t automatically drive customers to their location. This realisation highlights the importance of local marketing investment and execution.

Franchise industry data shows that franchisees who implement robust local marketing programmes typically achieve faster growth and higher revenue than those who rely primarily on national brand awareness. This is particularly true during the critical first years of operation.

Successful franchisees typically:

• Allocate a meaningful percentage of revenue to local marketing beyond any required national fund contributions
• Develop systematic customer acquisition programmes rather than random tactical promotions
• Create locally relevant community connections through targeted involvement
• Invest in building and managing their local digital presence, especially Google Business Profile and localised social media

Setting Your Franchise Up for Success: A Practical Action Plan

Having explored the seven key challenges franchises may face, let’s focus on practical strategies for success. Here’s how to dramatically improve your chances of franchise success:

1. Apply Thorough Due Diligence

Approach all franchise investment opportunities with proper research and verification. Remember that franchise representatives are focused on development, and independent verification is always valuable.

2. Consider Professional Guidance

Independent franchise consultants who don’t receive commissions from franchisors can provide objective guidance. Their expertise can help you evaluate opportunities more effectively.

3. Build a Strong Advisory Team

Before signing any agreement, consider assembling:

• A solicitor with specific franchise experience
• An accountant familiar with your target industry
• A business mentor who has operated a similar business
• A local commercial property specialist if your franchise requires retail space

4. Create a Structured Evaluation Process

Develop a systematic way to compare franchise opportunities across multiple factors, including:

• Initial investment and ongoing fees
• Training and support infrastructure
• Franchisee satisfaction and retention
• Actual unit economics
• Territory protection provisions
• System growth patterns

5. Develop a Comprehensive Business Plan

Before investing, clearly document:

• Realistic financial projections based on verified data
• Specific performance indicators to monitor
• Your capital reserves and funding strategy
• How franchise ownership aligns with your overall career and financial goals

The Success Mindset

Understanding potential franchise challenges is valuable when you apply these insights to your own franchise journey. Industry experts consistently highlight several key success factors:

Thorough research pays dividends. Franchise owners who invest significant time in research before signing agreements typically report higher satisfaction with their investment decisions. Taking the time to verify information and speak with multiple existing franchisees provides invaluable insights.

Financial preparation creates resilience. Successful franchisees often enter with more than the minimum recommended working capital, creating flexibility during the crucial establishment phase. This financial buffer allows for decisions focused on long-term growth rather than short-term survival.

The Franchise Opportunity

Franchising offers an excellent path to business ownership when approached with proper preparation and realistic expectations. The structure and support of a quality franchise system genuinely can improve your odds of success compared to starting from scratch.

The franchise model provides significant advantages, including established systems, brand recognition, collective purchasing power, and ongoing support. By understanding potential challenges and actively addressing them, you position yourself to maximise these advantages while minimising risks.

Remember that thorough research and preparation are your best allies in franchise success. Speak with multiple current franchisees, verify all financial projections independently, and allow sufficient time for proper due diligence. The right franchise opportunity matches not only your financial capabilities but also your skills, interests, and long-term goals.

Ready to Start Your Franchise Journey?

Are you ready to explore a franchise opportunity built on a foundation of thorough training, comprehensive support, and proven systems? ROOMS® offers all this and more. Our team is passionate about helping franchisees navigate the path to business ownership successfully. Contact us today for a no-obligation discussion about how ROOMS® could be the perfect fit for your entrepreneurial ambitions.