The reasons why the implementation of an internationally proven franchise concept can pose complex difficulties to the franchisee shortly after the founding of his franchising business can vary depending on the situation. Going by experience, Engel & Völkers have concluded that the three typical sources of error occur frequently when partial aspects of the start-up preparation are misjudged or neglected, not exclusively in real estate franchise. Read the following article to review the types of errors and how to avoid them by proactive planning.
Financing bottlenecks in franchising are often due to incorrect planning
Due to a lack of experience or presumed savings in interest rates, prospective franchisees often tend to overestimate or consciously minimize the amount of borrowed capital required, ie bank loans or promotional loans. The latter often results in cuts being made in significant parts of the production capital, such as the number of employees or necessary machines, in order to save costs in the short term. If it then becomes apparent in the course of the start-up phase that the negligent item is less expendable than was initially assumed, a subsequent investment often goes beyond the insufficient credit limit. If the money can not be procured elsewhere, the productivity and efficiency of the franchising company will be reduced.
It also happens quite often that the startup phase of a franchise operation produces no profits despite brand presence and customer loyalty of the franchisor in the first few months or years, but initially incurs even more costs. If this phase is not taken into account or is too short in financial planning, financial bottlenecks can easily occur. Careful up-front calculations are therefore essential for you as a franchisee. Depending on your personal experience, you may also be advised by a financial adviser or your franchisor.