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A stitch in time saves nine.
Thomas Fuller
The United States of America has over 800,000 franchise establishments that employ over 8.66 million people. According to the International Franchise Association (IFA), it will hit $893.9 billion by the end of the year. So, it's safe to say that this industry is "booming."
While the numbers are undoubtedly impressive, managing a large franchise network over geographically dispersed locations is no easy task.
This blog will identify the 7 most common franchise management challenges and provide practical approaches to solve them.
A franchise enterprise must run like a well-oiled machine to succeed. Single discordant cogs will significantly impact your enterprise. While operational hurdles are unavoidable, recognizing and addressing them ASAP will help things get back on track. With this, let's look at some of the biggest franchise management challenges even large franchising enterprises face.
With franchising, you give up a certain degree of control over the day-to-day operations of each franchise. Your customers, on the other hand, expect the same shopping or dining experience as they did in your flagship store.
The situation is further complicated by the fact that customers operating in different regions will have distinct customer preferences. The challenges come in the form of maintaining a delicate balance between preserving brand guidelines and giving franchisees a degree of autonomy to adapt to local customer preferences while ensuring that customer experience is consistent.
According to a franchisor survey conducted by the IFA, nearly 34% cited finding quality labor and the cost of acquiring it as their primary business challenges. The same study also found that almost 80% of franchisees have vacancies they haven't been able to fill.
High employee turnover rates are one of the key franchise management challenges today—every employee who quits results in a drop in productivity and the added cost of acquiring their replacement.
In the United States, it takes about 10 days to fill a vacant position, and it can cost up to 40% of an employee's salary.
Compliance is another critical franchise management challenge. The larger your network, the more complex it is to ensure all franchisees adhere to federal, state, and county laws. Any lapses here often result in significant monetary and reputational damage.
A notable example is a series of incidents in various Chipotle Mexican Grill outlets between 2015 and 2018, leading to over 1,100 people falling ill after dining there. These lapses ultimately led to the company paying a $25 million fine (the largest ever) in 2020.
Technology is the backbone of effective management. Using the right tools effectively can significantly improve the management of your franchise enterprise, from staff training to reporting, data analytics, and everything in between. That said, building and maintaining the technology in-house and developing the IT infrastructure to support it is not feasible for most franchise companies.
Convincing franchisees to invest in and adopt new technology is a constant hurdle. Not all franchisees are tech-savvy or willing to pay for software. However, it is in the best interest of franchisors and franchisees to use the right software and automate processes.
Navigating the complexity of accounting and finances is among the most common franchise management challenges. While franchisees are responsible for handling the day-to-day customer-related processes, franchisors manage various methods, from lease payments to Accounts Payable (AP) and Accounts Receivable (AR), to maintain a healthy cash flow.
Over and above these key obligations, franchisors must keep track of individual financial obligations based on individual Franchise Disclosure Documents (FDD), such as royalties and marketing contributions. Without tight integrations with franchise contracts and Point of Sale (PoS), franchisee payments are hard to calculate and often delayed.
Keeping track of assets across a vast franchise enterprise is also a major responsibility for the franchisor.
In a fast food franchise, for example, assets can include anything from delivery vehicles to furniture, kitchen equipment to POS machines, and everything in between. In-depth views into asset ownership, location assignment, usage, maintenance schedules, and history require a level of commitment to data hygiene.
Breakdowns due to improper maintenance are added expenses that can be avoided, and any downtime also leads to a drop in productivity or even customer experience. Furthermore, injuries that occur due to unauthorized maintenance can also leave franchisors exposed to a host of different problems.
A franchise's workforce is one of the cornerstones of a franchise empire's success. Managing a vast workforce across multiple geographic locations is difficult. Ensuring compliance with local labor laws, tracking individual employees' performance, managing leave requests, and streamlining reimbursements are the tip of the iceberg when managing a vast workforce.
Franchisors need robust systems for scheduling, attendance tracking, and leave management to optimize labor costs and productivity. Furthermore, franchisors must consider how user-friendly and accessible tools are for both tech-savvy and less tech-savvy employees.
While the above challenges seem complex, they can all be addressed with the right strategy, planning, and training. Here are a few pointers to help you get started.
Building and maintaining a successful franchise is as challenging as it is rewarding. That said, being proactive rather than reactive can help you nip all the above-mentioned franchise management challenges in the bud. Adapting the right technology solutions can go a long way toward streamlining your enterprise's operations.
Hubler's powerful franchise management software can help you tackle the most pressing franchise operations challenges, from workforce and asset management to streamlining finances and ensuring compliance.
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