Preventing Franchisee Failure

As financial pressures continue to squeeze franchisee margins and confidence, it’s vital that franchisor teams step up to provide focused support. Here are eight strategies we observe great franchisors doing, based on our work with hundreds of brands.

Pull on the heads of “ostrich franchisees”.These are people who stick their heads in the sand and don’t want to talk with anyone about their financial challenges. A franchisee who goes quiet, doesn’t return your calls or fails to attend group meetings is probably in denial. Reach out, create a safe space to talk and find out what’s happening. Then use these tips to take action.

Set up an Intensive Care Unit (ICU).Be proactive in identifying businesses at risk, put them in your ICU and make this known. Ensure you have a senior franchisor executive overseeing the ICU, and document commitments made to bring the business back to health. Also, be firm on mutual compliance with these commitments. If a franchisee’s business fails, you want to be able to look your team in the eye and say, “We did all we could to prevent this.”

Monitor KPIs relentlessly. One of the most effective ways to prevent franchisees from falling into financial difficulties is to regularly monitor and discuss KPIs that correlate with financial health. Lead KPIs that the franchisee can control are better than lag KPIs (such as sales or profit), e.g. transaction response times, product quality, customer feedback measures, team engagement scores and training participation rates. Other useful KPIs are sales-to-expense ratios, such as COGs and wage percentages.

Harness the power of peer sharing. Devote at least 50% of franchisee meetings and conferences to practical how to round table topics such as “how to….increase average transactions ….increase repeat purchases ….boost team engagement, ….reduce labour costs, etc.” Also, get your best performers onto panels, sharing what they are doing to achieve results.

Recognise their difficulties. Get on the front foot and show empathy by acknowledging the pressure franchisees are under. They want reassurance that you are aware of their challenges and are actively working to support them. Also, increase the frequency of two-way communication, explaining what you’re doing and why, and listen to their concerns. When people feel heard, trust and engagement improve.

Use AI with benchmarking data. Help franchisees identify patterns and insights by using AI tools to analyse KPIs and benchmarking data. (But read the AI warning section below.) Then, explore solutions through coaching conversations where they contribute ideas and solutions, as this will improve commitment to action.

Renforce a culture of connection. We all cope better with stress and uncertainty when we feel part of a supportive network. You can enhance this sense of belonging by facilitating networking and peer learning at events. Also, remind everyone of your shared goals and values, such as passion for customer satisfaction, team development, and brand reputation.

Share the gain and the pain. If you want your franchisees to collaborate and engage with your initiatives, they need to believe you are acting fairly and not taking advantage of your power. This includes sharing productivity gains or cost savings achieved through supplier negotiations, as well as the costs and risks of business-building initiatives.