Engel & Völkers Franchise > Blog > Three typical mistakes within a franchise creation - and how to avoid them

Three typical mistakes within a franchise creation - and how to avoid them

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.

- Company premises of an internationally successful real estate franchise company

Assess performance potential in franchising correctly and avoid miscalculations

In order to be economically viable with your company in the marketplace, you, as the operator and franchisee, must make a well-founded prognosis of what services you and your team can perform within a certain period of time and how much revenue you can generate accordingly. Another typical error risk for franchisees rests in this calculation:

Based on weekly working hours, it is relatively easy to calculate how much potential a franchise operation has in about a year. With fixed fees for the work done, it is then possible to conclude the turnover generated during this period. However, it is often neglected hat this work potential can not be used solely for the turnover-generating work. Thus, the acquisition of new customers, work organization, technical breakdowns or illnesses take up a certain amount of time, which must be deducted from the total working time of the team, but at the same time can not generate direct sales. If these quotas are given too little space, this leads to an overestimation of the performance of the franchise operation. Excessive spending based on this forecast quickly presents franchisees with significant problems, so you should consider realistic outage contingents when assessing your performance potential.

Franchisees benefit from the experience of the franchisor

The third typical fundamental error of company start-up is the establishment of a company structure without taking into account essential data sets, statistics and external information. If, for example, sales prices are calculated without the inclusion of competing offers, later volume discounts or framework agreements and included in the financial calculation, it can be assumed that significantly less turnover can be achieved at the end of a business period than anticipated. The same applies to public statistics and datasets: they provide valuable information about the demographic structures of the franchising location, help to make the target group of your offer more concrete, and provide an overview of the current situation of sub- and overall markets. Lacking this essential information in financial planning makes it difficult to accurately forecast customer behavior and sales figures, threatening to deprive corporate governance of economic control.

At this point, franchisors benefit from the years of experience and preliminary work of their franchisors. These usually provide extensive data and information packages as well as business strategies and training for their franchisees in order to minimize the risk of information deficits. Since all this information has to be researched and worked out during the traditional start-up, one of the main advantages of franchising lies in this aspect.

Are you also considering setting up your own business, especially in the real estate franchise? Would you like to trust in the internationality and strength of a well-known industry leader? Then Engel & Völkers is the franchisor of your choice. Further details can be found at the following link, and we will be pleased to inform you further by phone or email.

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Engel & Völkers
  • Vancouverstraße 2a
    20457 Hamburg
  • Fax: +49(0)40 36 13 12 22

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