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Kleenmaid demise and early warning signs
Written on the 28 May 2009 by Jason Gehrke
The Kleenmaid franchise failure continues to unfold with administrators Deloittes releasing a final report to creditors stating Kleenmaid Group debt has swelled from an initial $73 million to more than $100 million.
The report also found Kleenmaid traded whilst insolvent since June 2007, including taking on more franchisees.
Franchise Advisory Centre Director and Griffith University Adjunct Lecturer Jason Gehrke said although Kleenmaid directors blamed the company’s woes on the Global Financial Crisis (GFC) it was likely this was not the real cause.
“The real cause of Kleenmaid’s demise is most likely to be mismanagement and a number of dangers signs in the business could indicate management incompetence ,” Mr Gehrke said.
These might include:
“These are topics potential franchisees should include as part of their due diligence,” he said.
Franchisees are sensitive to the arrival and departure of franchisor head office staff such as support personnel.
“Staff working under incompetent management will leave at a much greater rate than those working for competent bosses,” Mr Gehrke said.
“Incompetent management often takes on any potential franchisee in a bid to grab as much up-front cash as possible. If the only criteria to join a franchise is to have the money to buy-in, a franchise system is doomed.”
Site and territory selection, based on a robust and data-driven process is equally critical. If a franchise network is regularly closing stores or territories, problems exist either with the system’s site selection or elsewhere in the franchise.
Organisation policy and direction is another core element of successful franchises, Mr Gehrke said.
“Where changes are made randomly or for reasons unknown to the stakeholders affected it demonstrates incompetence by management to understand or balance the needs of all stakeholders.
“Increases to the percentage of turnover franchise fee is another warning sign, as is an increase in dispute levels and seriousness of disputes within a franchise system.
“In challenging economic times organisations which modify their product or service to meet the market are more likely to survive and thrive. This requires management with forethought, tenacity and planning to anticipate and benefit from such opportunities,” Mr Gehrke said.
Read Jason’s full blog post, ‘Kleenmaid proves the GFC is really a Great Feeble Cop-out’.
Author: Jason Gehrke