Because investing in a franchise is a life-changing event, every prospective franchisee should thoroughly investigate a franchise opportunity before signing any sort of franchise agreement.
While there are multiple websites and books floating around that outline the steps that ought to be taken in the interests of due diligence, you should take a minute to review the “red flags” we've outlined below:
1) Is the franchise salesperson putting on the pressure? One of the traits of a good franchisor is that it wants to make sure there is a mutually good fit before “closing the sale.” Should you find yourself being pressured into making a decision but feel like you haven't been given adequate time to think everything through, don't sign an agreement. Frankly, the franchisor wouldn't be hounding you like that if the franchise opportunity were, in fact, spectacular or if there were, in fact, a long line of potential franchisees. What's more likely in a pressure situation is that the franchise opportunity is not that spectacular, their line is not that long, and, conversely, they need your money in order to make their payroll.
2) Do the salesperson's explanations not match up with what's in the UFOC? Is the salesperson making promises and/or commitments above and beyond what's written in the Uniform Franchise Offering Circular (UFOC)? If so, you should have the contract amended to include those promises. Remember: always get it in writing.
3) Has the franchise salesperson not followed through? Sometimes franchisors lead prospective franchisees through a bunch of hoops so they can better predict how the prospective will respond as franchisees. Just make sure that the franchisor keeps his word during this “courtship” period – if he doesn't, you'd be wise to not jump into marriage!
4) What do existing and former franchisees have to say? There's no better way to find out whether a franchisor has lived up to its promises and provided leadership to its franchise network than by conversing with current and former franchisees. Keep in mind that, while there are always those disgruntled franchisees that had unrealistic expectations to begin with, a large number of complaints among a set of franchisees signals a definite red flag.
5) Is there a history of litigation? Litigation is not, by definition, a bad thing – for instance, a good franchisor is willing to litigate in order to protect the brand in question. And there will always be a contingent of disgruntled franchisees that will blame the franchisor for their own shortcomings. However, excessive litigation is certainly a sign of trouble; if this is the case, dig deeper.
6) Are you uncomfortable with the level of training and support provided by the franchisor? Consider the length and composition of the program (all lecture or some hands-on experience?), the subjects to be covered, and the qualifications of the training instructors. If you're not sure whether or not you'll learn what you need to know to operate the business, look into the issue. Current franchisees are a good source of information: Did they learn enough via training to operate effectively? Did they get needed help on an on-going basis from a qualified support staff? Are you confident that the support outlined in the agreement can effectively assist you in managing your business?
7) Is the franchisor's financial stability questionable? You should have a franchisor's UFOC reviewed by a professional. While most franchisors have the best of intentions when they promise support, what matters is that they are able to ultimately provide the support you need.
Sebastien Page is Director of Marketing for WorldFranchising.com, a website that provides franchise information to potential franchise buyers.
Warning Signs When Buying a Franchise - To learn more about this author, visit Sebastien Page's Website.
Like this article? Share it with your friends
 |
Related Articles |
|
 Buying A Franchise
|
| |
Buying a franchise can be a life changing experience. There are many good reasons to pursue your dream of owning a successful franchise. For starters when you buy a franchise you are buying a proven system. Buying a...
|
|
Franchising with all its Success
|
| |
This article shows point on why franchising is a better business venture.
|
|
Hottest Retail Franchise Business Opportunities
|
| |
If you’re looking for all the advantages of having your own business without the high risk of failure, then take a look at some of the hottest retail franchises available in the U.K.
|
|
Question Your Franchise Decision Making
|
| |
Deciding on a franchise may be one of the most important decisions you will make in your lifetime. Before rushing right into it out of sheer excitement, please take some time and ask yourself the basics.
|
|
Big Changes Coming in Franchise UFOC Meet the FDD
|
| |
The UFOC is going to have a major change as per new FTC ruling and will be renamed as FDD. It has to be implemented by July this year. The changes include modification of the name of the items and major alterations ...
|
|
|
Sebastien Page
(Visit Sebastien's Website)
Sebas
tien Page is Director of Marketing for
Wo
rldFranchising.com, the most
comprehensive information resource for
potential franchise buyers. The company
also publishes franchise best sellers such
as Bond's Franchise Guide, and Top 100
Franchises Guide. Before joining
WorldFranchising.com, Page was Marketing
Manager for Franchise.com where he
successfully led the Marketing Department.
Sebastien Page is very active in the
franchise community and he often writes
about franchising, sales and marketing.
|
|
|
|
![[Get Copyright Permissions]](http://license.icopyright.net/images/icopy-w.gif){kind=small}
