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Real Estate Investing: 3 Reasons Why Franchises Fail

The failure of a privately owned franchise often results from a mixture of problems:

  • ineffective corporate management
  • business failures on the part of the franchisee.

In real estate investing circles, the shortcomings of parent companies are well known. Many of the companies are publicly traded and generate buzz among investors when their business spikes or plunges.

The shortcomings of franchisees, on the other hand, are often less obvious, as they tend to occur behind the veil of corporate sponsorship. If you are thinking about making an investment in real estate that a privately owned franchise occupies, it is important to assess the viability of the franchisee in addition to evaluating the performance of the parent company.

REASONS WHY FRANCHISEES FAIL

Franchisees fail at running franchises for a various reasons, but some are more common than others. Before you make an investment in real estate that a privately owned franchise occupies, consult with the triple net property brokers at Westwood Net lease Advisors to assess whether the franchisee is positioned to succeed, or whether he could potentially fail to operate the business successfully due to one of the common elements of franchise failure below.

BAD BUSINESS RATING

If a property has been previously shut down due to code violations, or it receives a low service rating, think twice about putting your money in the real estate. A triple net lease makes the tenant responsible for property maintenance, but there can be extraneous maintenance issues, such as sanitation of restaurant equipment and inventory storage, that the tenant must see to on his own. These maintenance issues can end up having a major impact on how a business performs.

POOR OVERSIGHT

Some franchisees want a business they can own without managing. While hiring a good manager can help make this dream a reality, it doesn’t mean the franchisee is free form dealing with franchise’s daily business. If the business experiences trouble, an absentee franchisee is often ill equipped to deal with the problem. This is why many corporations recommend franchisees to spend a certain amount of hours at the franchise each month.

FAILURE TO STICK WITH THE PLAN

Franchise ownership is often a bad fit for those who like to march to the beat of their own drum. The products or services a franchise sells, its business hours, its marketing messages, etc. are designed to appeal to its demographic. To tinker with these elements of the business is to mess with success, and often meets with failure. Well established franchises and entrepreneurial mavericks who like to shake things up are seldom a good match.

CALL WESTWOOD NET LEASE ADVISORS

The owner of a franchise plays a major role in the success or failure of the business. If you are considering making an investment in real estate that a privately owned franchise occupies, the triple net property brokers at Westwood Net Lease Advisors will help you assess the viability of the franchisee as a business owner in addition to evaluating the performance of the parent company.

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Tags: fail, franchisees, tenant, triple net lease, triple net property brokers