In my opinion, executive franchise ownership is a pretty sweet deal. Executive franchisees get all the excitement and freedom of entrepreneurship, but without having to work full-time in the business. And because executive ownership enables multi-unit franchising or area development, executive owners often build more wealth than owner-operators.
I’ll be honest, though: executive franchise ownership does have its pitfalls. But if you go into the arrangement with your eyes open, you can watch for and avoid them.
Overspending
Why it’s a problem
Most of the candidates I work with are current or former corporate executives. They’re usually excellent money managers, but they’re also usually accustomed to working with budgets of tens or hundreds of millions of dollars (or even more). As you might expect, no franchise startup budget is that big. And when the entire yearly budget of your new business is about the size of a rounding error at the job you just left, you can easily fall into the trap of overspending. I mention this pitfall first (and give it the most space) because it’s potentially the most dangerous. No matter how smart your other choices are, if you constantly overspend, your franchise will fail.
How to avoid it
To avoid this trap, pay attention to the numbers. As part of the due diligence process, the franchisor will provide you with a Franchise Disclosure Document that includes information about operating costs and sales expectations. Use that information to set SMART revenue goals for yourself so that you know how much money you need to make each week, month, and quarter until you reach profitability. Once you launch your franchise, track your sales carefully and always be aware of how much financial runway you have left.
You can also reduce the likelihood of overspending by keeping your expenses low. Your franchise agreement may set requirements for things like where to buy employee uniforms or certain equipment. But that doesn’t mean you can’t shop around for the best value for everything else. For instance, if your franchisor gives you a list of recommended vendors, but doesn’t require you to use any of them, don’t assume those vendors will provide the best deal. They might offer special pricing to members of your franchise network–or they might not. Don’t be afraid to get competing bids, ask other franchisees in your network to recommend alternatives, or check with local business owners and trade associations for recommendations.
Finally, take commonsense, ongoing steps to stay within your operations budget. For instance:
- Hire financially responsible employees.
- If you have a brick-and-mortar franchise, conserve electricity by using energy-efficient bulbs and appliances. Set the building thermostat at a reasonable level.
- If your franchise has a vehicle fleet, set efficient service routes to avoid wasting gas.
- Keep up with preventive maintenance–on buildings, vehicles, and other equipment–so you catch problems before they become big and expensive.
- Conduct an annual supplier and services audit to make sure you’re getting the best possible deal on equipment, supplies, insurance, and more.
Impatience
If you’re like a lot of the candidates I work with, you’re a go-getter. You’re ambitious, driven, and goal-focused. That kind of temperament often leads to corporate success, but it has a common pitfall: impatience. Impatience can be especially dangerous for executive franchisees. As I mentioned above, executive franchise ownership pairs well with multi-unit franchising or area development. Both those arrangements, however, are a long game. When someone becomes a multi-unit owner or area developer, they usually spend a few years opening all their franchises–and then more time reaching profitability.
The timetable for this process is typically laid out in the franchise agreement. It’s based on a number of factors, including the franchisee’s financial resources and comfort level with complex business operations. The franchisor’s experience plays a role, too. By working with hundreds or even thousands of franchisees, established franchisors have learned the right pace for opening, say, six new locations in a region. They know how to avoid outgrowing the customer base and how to time multiple openings so that major up-front costs don’t all hit you at once.
There may be times when it makes sense to accelerate your original plan. For instance, your first couple of franchises might become profitable more quickly than you expected, giving you an early infusion of free cash. But generally speaking, you should avoid pulling the trigger too quickly on any kind of expansion. Once a new location is open or a new service is available to clients, you can’t backpedal without significant financial and reputational damage, with both your customers and your franchisor.
Delegating Too Much
My favorite perk of executive franchise ownership is work-life balance. Once you’re through the initial launch period, you can keep a multi-unit franchise business humming along without much work. Especially if you’re close to retirement age, however, the lure of a short workweek can become a pitfall. Franchise success means exercising just the right amount of involvement, not skipping out altogether. You’re an executive owner, after all, not an absentee one.
I generally tell my candidates to plan on investing 8-10 hours of work per week once their business is running smoothly. You should spend this time reviewing your books and progress toward strategic goals, checking in with your franchise managers, and troubleshooting any issues that require owner-level attention. While you can check in with your franchise managers by phone or over Zoom, remember that there’s no substitute for in-person interaction. I recommend visiting each franchise somewhere between once a month and once a quarter. Use this time to inspect your building, make sure the workplace culture seems healthy, and get face time with employees. Your presence will help maintain accountability, positive relationships, and investment in the franchise’s success.
Not Following the Business System
Why it’s a problem
I’ll be honest: for a former executive who’s run a large division or an entire corporation, following a franchise business system can sometimes feel constraining. You may see opportunities for efficiencies, new products, or solutions to nagging problems. It’s great to put your significant business experience to work trying to improve your franchise, but don’t fall into the trap of throwing out the playbook altogether.
Remember: a franchise business system is established through trial-and-error with hundreds or thousands of franchises. It’s a tested, proven system that has generated success for many people on a reliable timeline. That’s why you bought into it, after all. Plus, you’re contractually obligated to follow it. If the franchisor finds out that you’re deviating from the business system, you could face penalties ranging from fines to cancellation of your franchise agreement.
How to avoid it
If you’re currently the kind of executive who pushes boundaries and drives constant innovation, be aware that franchising comes with a certain amount of structure. But that level of structure varies by franchisor, so you can probably find one that fits your personality. A new franchise brand, for instance, may allow more experimentation with the business model or may partner more closely with franchisees on solving problems.
Among established franchisors, look for a business system that’s more broadly defined, with fewer supplier and operational requirements. Ask current franchisees whether the franchisor prefers a top-down structure or regularly solicits input from owners. Above all, don’t try to force a fit or assume you can change the franchisor’s culture or methods. Pick a business based on satisfaction with how they currently do things. You’ll be much more successful if you pair with a like-minded franchisor from the start.
Ready to take the plunge into franchise ownership but want someone to help you avoid the pitfalls? I’m here to do just that. I can work with you to do a self-assessment and find a franchise that plays to your strengths. We can start the process with just a 20-minute call. Book some time on my calendar today!
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