by Franchise Accountants
last updated 15/09/2019
Franchise Accountants: 6 reasons franchisees fail and how to avoid them
by Franchise Accountants
last updated 15/09/2019
Philip Morrison of Franchise Accountants offers some helpful advice
Buying a franchise is generally a great way to get into business. But even with a known brand and good support, there are no practice runs. Here are six rookie mistakes that can lead to business failure, and some suggestions on how to avoid them.
1. Busy being busy
Focusing on things that are ‘urgent, not important’ is a common pitfall. As a franchisee, you’ll have multiple priorities and demands on your time: managing people, resources, customers and cashflow. Working out what really matters and what you have to focus on can be over-aweing at times.
Listen to your franchisor and act on their advice – they know what they are talking about. Follow the systems and training provided. Be disciplined with where you spend your time and spend your energy.
2. Not keeping track of the numbers
Bad cashflow management can choke a viable business – cashflow is the number one area that any business owner must control. But business owners often loathe doing the books and leave it to the end of long work days or weekends. This means they have no visibility over how the numbers in a business are tracking until it’s too late. I have heard many clients say, ‘I’m not good with numbers’. Well, business failure will be an expensive lesson, so invest in upskilling yourself or get help to keep your accounts up-to-date and tidy.
Cloud accounting software is easy-to-use. Employ a bookkeeper if need be to handle the accounts while you focus on business performance. Seek help to prepare a financial forecast or budget which will help you identify where to focus your attention. As a franchisee, you have the great advantage of having a franchisor to tell you which numbers really count. The franchisor should also be able to tell you target percentages for Key Performance Indicators and help you benchmark your performance in these areas against other franchisees.
3. Fail to plan – plan to fail
If you don’t know where you are going, any road will take you there. Driving without a plan of how to reach your destination will result in lots of wasted time and money. When was the last time you updated your business plan? How do you measure your business goals? Do you have a strategy on how to achieve them?
The reason business plans fail is often due to poor execution, so don’t just have a plan – make yourself accountable to someone for following it. Some people use a business coach for this, but remember you have a franchisor and franchise support team to work with.
Writing a business plan can be a simple one page exercise, or can be more detailed. If you’re not sure how to start or how far to go, seek help from your franchisor or accountant.
4. Not paying tax
A client once said to me, ‘I didn’t have any money left to pay my taxes after paying everyone else.’ So where did the money go? In their case, money was spent on excessive discounting and buying assets for the business out of cashflow. They hadn’t made any provision to pay tax – so they couldn’t.
Bad move. The IRD is not a bank, and even a bank won’t lend you money to pay for tax arrears. In fact, one of the first questions a bank will ask you if you are looking to borrow money to fund a shortfall is, ‘Are you up to date with your taxes?’ If the answer is ‘No’, you’re in trouble.
Be disciplined with paying your taxes and setting money aside from cashflow to pay them as and when they fall due. Get your accountant to advise on some options to keep you on top of this.
5. Don’t be an ostrich
If you are facing challenges, don’t bury your head in the sand – ask for help and advice, and do it sooner rather than later. Don’t ignore the warning signs.
Isolation is a common problem amongst small business owners, but that shouldn’t be the case for franchisees – they have not just their franchisor team but a whole peer network of fellow franchisees to talk to. Think about who to talk to who would best understand, and involve your professional advisors such as your accountant and banker, too. They will want to help.
6. Good days, bad days
Operating your own business can be rewarding but also challenging – you will have good days and bad days, so you need to have some emotional resilience. Have realistic expectations of your team, customers, suppliers, etc. Find healthy ways of re-fuelling your emotional tank such as exercise, healthy diet and getting enough sleep rather than burning out with fatigue from working too many hours. Have some fun activities – there’s nothing like laughter to release endorphins.
use what you pay for
Over the years, the team at Franchise Accountants has worked with thousands of business owners, and the above tips are based on issues we’ve seen regularly. If you want your business to succeed – and who doesn’t? – pay attention to the basics, apply the systems, understand the numbers and ask for help when you need it. After all, you buy a franchise to get exactly that support.
This advice is of a general nature only and expert advice should be sought to get the right advice for your specific situation.
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