5 Common Mistakes Franchisees Should Avoid

5 Common Mistakes Franchisees Should Avoid by Neil Burnard

A common quality people within the franchise industry seem to share is being risk averse. We buy into a franchise for the whole purpose of it being a more dependable road towards success than starting our own business from the ground up. Being calculated, thoughtful, and thorough in your decision to buy a franchise is important, but there are going to be bumps in the road no matter what you do. While you can’t avoid every mistake, you can at least educate yourself on the most common mistakes franchisees make, so you know a red flag when you see it.

Mistake #1: Trying to finance everything yourself.

Many people (falsely) believe that if they can afford to cover their franchises expenses without borrowing then they should. The goal seems reasonable: pay for things upfront and you’ll avoid fees and interest in the long run. Unfortunately, this can actually limit your businesses options in the future.

In a more volatile market, you can never been sure when things are going to take an uptick or a downturn. If the market starts performing worse than you originally expected, you could end up needing to apply for a loan anyways, accept now you’re in the worst possible conditions (you’re reporting a loss and underperforming.) A bank is probably going to look at your situation and reject your application. A few more months of uncertainty, and you could go under before the next uptick.

It’s actually a better safeguard to request a loan at the outset when your business plan shows promise and no problems have had a change to occur yet. You’ll have a good chance of being approved, and you’ll feel better knowing you have a cash safety net. Plus, you aren’t burning through personal capital that could potentially leave you or your family untaken care of.

Now this isn’t all about reducing your risk of failure. This decision can also help you when things are going well. If you decide you want to expand (perhaps buying a second territory or another outlet), you might need some extra cash to do so. If you approach a bank, especially in the current economic environment, most banks will require you to put in more money at that time. Again, if you had borrowed at the outset, and kept your own money as a backup, you could expand without putting down more money.

Mistake #2: Having a vague business plan

When a new franchise is first getting going, they need a comprehensive business plan that will take them from day 1 to consistent profitability.

You can’t come in day-to-day only focusing on the tasks in front of you. That won’t lead to growth. You need to set real goals, deadlines, benchmarks, and indicators of success. If you don’t have something to measure your business against, you won’t have any idea whether or not you’re on the right track. And worse, you won’t know when or how to intervene.

Mistake #3: Not planning for sufficient working capital

Before you plan for anything, you need to be sure that you can pay for it. You should have a projected profit and loss account and a cashflow forecast to establish how much money you need at the outset. If you run out of working capital before you’ve reached the goals set forth in your business plan, you’re done. This is something you should be thinking about now, not months into your venture when you’re suddenly running short.

You will also need to account for certain variants. For example, typically sales start slow and then gain momentum as the business gains momentum. Overheads (think salaries, rent, etc), on the other hand, remain pretty consistent for the first year. This means the first few months of business will require more cash to function.

Conversely, if your business has a spike in sales, there is generally an extra expense before the money from the sale is received. This too means you’ll need extra working capital during this lag-time.

Mistake #4: Forgetting to go back to your projections and business plan

It’s easy to get caught up in the daily grind and forget to revisit your initial projects and business plan as often as you should. Let it go too long, and you’ll likely see that your business has driven off course.

Mistake #5: Refusing to learn

Becoming a business owner for the first time, you’re likely coming into the game with a few expertise under your belt, but you’re not going to know everything. You might be a master of sales, but have never touched a marketing campaign before. Maybe you can understand a profit and loss account, but you’re not sure what to do with the information once you understand where you’re falling short.

Most franchisors provide training on every aspect of their business, so that you can become the jack-of-all-trades you need to be, at least in the beginning. As your business expands, you’ll be able to hire more and more people with niche expertise who can take these parts of the business ten times farther than you ever could. But for now, you at least have to have a working knowledge of everything that takes place under your roof.


There are a million pitfalls that a new business owner can run into, but lucky for franchisees, most of the kinks a new business faces has already been smoothed out by the franchisor. All you need to do is be ready to learn, constantly check in to make sure you’re hitting your mark, and adjust your plan as needed. And remember, if you feel stuck, never be afraid to take advantage of the knowledge, experience, and expertise of your trusty franchisor. They are there for a reason!