Five important red flags to look out for before buying a franchise

With all businesses there is a degree of uncertainty that comes with it. This can be reduced to a great extent by following the path of franchise. Since franchise is a proven business model, it saves the new business owners the time, energy and money they would have to expend building concepts on their own.

But it is also important to remember that franchise is no promise of success, as some emerging franchises cannot guarantee its future.  

Like any good opportunity, it’s important to do extensive research and look out for warning signs before committing to a concept

Related Read: 6 Questions to Ask Before Initiating a Franchise Search 

1.Franchisees do not make enough money

Franchisees aren’t making enough money to satisfy their financial goals. Item 19 of a Franchise Disclosure Document (FDD) describes the potential earnings of a prospective franchisee. The franchise firm should ideally break out the range of what franchisees receive from their operations into three categories: top third, middle third, and bottom third. If the middle-third of franchisees aren’t making enough to meet financial goals, leave immediately. 

Similar Read: 5 Reasons why an idea failed to be a business

2.Franchisors are not taking ownership for the overall performance

Franchisees are to fault, according to franchisors. Don’t allow a franchise to justify bad performance in the middle and lower tiers by claiming that the franchisees don’t comprehend the system. So what if the current franchisees are bad? What makes you believe the franchise’s operating system is any good if it can’t recruit properly? Avoid franchises that do not accept responsibility for bad performance. 

Related Read: Top 10 best business opportunities in franchise for 2023

3.Franchise model that is constantly changing

The model is in a constant state of change. If the franchise is constantly changing the premise, you should be wondering why. A repeatable business plan is one of the most important aspects of a successful franchise. Walk away if it appears unorganized or in need of constant change. 

4.Franchise system that shuns feedback

Results are less essential than compliance. Is the franchise a collaborative atmosphere in which they listen to franchisee concerns, or is it a bureaucratic nightmare with little regard for franchisee performance and relationships? Speak with current or past franchisees about their relationship with the franchisor and the supports available to them in times of need. 

5.Franchise system that favours nepotism

It’s staying in the family. Franchises can often get a little too cozy, morphing into benevolent dictatorships with a high regard for relationships and a low regard for results. Keep an eye out for franchisors who have a strong familial ties. Too often, I see franchise owners choose relatives for positions rather than thinking who could be the greatest person for the job. A good franchise necessitates highly trained and experienced management that prioritizes competency over favoritism. 

Source: Entrepreneur

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