Why Do Some Canadian Franchises Fail?

As a prospective franchisee, you may have run into horror stories about failed Canadian franchise brands. It's a tough thing to see: entrepreneurs just like you putting their all into a business and losing it because of things outside of their control. This can be a factor that may even prevent you from joining a franchise even though you really want to own your own business and enjoy the benefits that come with being part of a system.

First, it is important to understand that all businesses carry risk, even franchises. That is why you must be absolutely certain you are ready to take on that risk before you invest. However, at the same time, you can help mitigate the brand-failure risk a bit by taking a closer look at your prospective franchise. Brand failures rarely happen in a vacuum; there are normally some signs that a franchise may not make it before it actually ends.


A checkered past

If you haven't already, do some internet sleuthing on your franchise. Make sure to look past the press releases and other sales and marketing pieces; these are designed to sell the franchise only. What you are looking out for are negative stories about the franchise, such as public relations debacles, legal troubles, financial problems or a flood of complaints from current franchisees.

Keep in mind that context matters here. It is not uncommon for a large brand, for example, to face a lawsuit on occasion, or for a few franchisees to be disgruntled. But if you see several issues or a large volume of the same type of complaint, it is a red flag about that particular system.


A high turnover rate

You should have been provided your brand's turnover rate as part of the materials you received from the brand. A high turnover rate is never a good sign. It can mean the system no longer produces results or there is some other serious issue with the system. Keep in mind that the size of the system should impact how you perceive the rate. A brand with 100 franchisees that turns over around 10 over three years is not nearly as bad as a franchise that lost the same number but only has around 20 franchisees.


Constant signs of experimentation

Of course, you want a brand that is committed to innovating and bringing in new tools, concepts and ideas. However, what you don't want is a brand that has completely changed its approach and methodology more than once in the last few years. This is a sign that the system may not be working and that they are struggling to find something that does.