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A recurring franchise problem and how to avoid it.

Updated: May 16, 2023

A common problem for both franchisors and franchisees is the lack of commitment

made by a franchisee who has been given the franchise with funding from the bank

of Mom and Pop.

Here are two real life examples.

Mom and Pop apply for a man-in-a-van franchise for their son. They all arrive for the

interview meeting with the franchisor and are charming. The son is a bright and

eager twenty something, his father owns a small building company and his mother is

a qualified accountant. The proposition is that the business will be in the name of the

son, funded by the parents with the mother looking after the admin. including cash

control. They don’t need outside borrowing and want to start straight away in an

unallocated prime area. What could be better for all concerned?

What the parents failed to disclose was that when the son joined the family building

company his drug problem caused absenteeism, shoddy work and unreliability.

Buying him a franchise appeared to be a better solution than firing him.

Not long after starting to trade the son began to embezzle money to fund the drug

habit. His mother didn’t spot this because, not believing that he would steal from his

own business, she didn’t check properly. When cashflow became strained she

injected more money. Other problems arose, customers were let down, female

customers complained about being propositioned and reckless driving got the police

involved. Needless to say; it didn’t end well for anyone.

The second example involved a successful businessman who bought a coffee shop

franchise for his daughter. After a few months she lost interest and the father had to

take over. He soon found this impossible because of his other commitments and

closed the business down. The franchisor did eventually receive some compensation

but had to endure many spurious allegations on social media and the reputational

damage of a failed branch.

These examples and many similar ones in a wide variety of franchises show that it is

vitally important that those with day to day involvement have skin in the game.

To be fair to franchisors it is difficult to differentiate between applicants who are

being helped financially by their family and those who are being coerced as well.

For parents, siblings or business angles it is important to realise that there is a big

difference between helping someone financially who has a burning desire to run their

own business and throwing money at an underlying problem.

The only real solution, whether you are a franchisor or a franchisee or indeed Mom

or Pop, is to not let it happen in the first place.

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