There’s no doubt that franchises are one of the best business models you can consider. As a prospective franchisee, you are investing in a well-recognized company with a proven track record of success and leveraging that momentum to start your own business. A pretty solid business model, isn’t it?
However, as with any industry, franchises have a few bad ones amongst them too. Also, a franchise opportunity that looks fantastic on paper may not suit you or your preferences. That’s why it’s important to carry out your research before purchasing a franchise. While weighing your options, make sure to look out for the four signs below that indicate that the franchise might not be a good investment for you.
1. It Sounds Too Good to be True
It’s important to pay attention to your gut instincts when considering buying a franchise opportunity. If your gut tells you that a deal seems too good to be true, it probably is. This is a good sign that you need to do more research about it. There may be some downsides to those attractive opportunities that you need to know about before investing.
2. You Are Not Comfortable With the Folks at the Franchise Company
People hate being pressured to do something before they are ready to do so. And franchising is no different. If those at the parent company are pushy and trying to make you commit before you get all the important facts, you may need to consider other options. This often indicates that the people there are only after your fees and don’t have your interests at heart.
The fact that you have reached the point of purchasing a franchise of that company is great news. It shows that you are focused on a particular industry and have decided on the kind of business to venture into. So, there’s a good chance that you will find another franchise that suits your preferences and communication style better.
3. Existing Franchisees Are Saying Negative Things About the Franchise.
Franchise owners are the ones who know what it is like to operate a particular franchise, so if these people are sending you warning signs, it might be best to keep off that company.
Before buying a franchise, it’s important to perform due diligence by speaking with multiple franchisees of the parent company. This will allow you to know whether the franchise opportunity is what it seems like and give you an idea of what to expect realistically after signing the franchise agreement. As you search for franchises to buy, continue to speak with current franchise owners to know what’s to come once the paperwork is completed.
4. Something Feels Wrong About the Fee Structure
Some franchisors concentrate more on initial fees instead of royalties. This is a big warning sign because a good franchisor will know that the real, sustainable value of the business is in royalties, not the upfront franchise fees.
On the other hand, a franchisor may also be willing to offer excessive discounts on initial fees and royalties. While it may help you in the beginning, this kind of aggressive approach is often a red flag. If the franchise is relatively new or venturing into a particular market, it might be a great strategy to attract more potential franchisees. But if the franchise has already gained a footing in the market, chances are that the franchisor has other hidden reasons for requesting lower fees and royalties.
Are You Paying Attention to the Red Flags?
Not all franchises are suitable for everyone. When you listen to your gut feelings and take note of these warning signals, it will prevent you from pursuing a franchise that looks great on paper but won’t be a good fit for you in the long run.
