Keep an eye out for these warning signs that the franchise system is not healthy or the programme isn’t working well for investors.
High turnover rate
Is the turnover figure more than 20%? Ask why those people left: Did they sell their businesses for a tidy profit, or did they fail in the business and close their doors? Talk to several people who left. A high turnover rate caused by business failure or franchisee unhappiness is a reason for concern.
An aggressive franchisor dispute resolution style
If the franchisor has a history of suing its franchisees to collect fees or enforce the terms of the franchise agreement, ask the franchisor and franchisees why and what the outcomes were.
Disappointing franchisee reports
When you talk to franchisees, what do they say about their experiences? If they are discouraged, not making money or mad at the franchisor for some reason, you need to understand the problem. Do not be quick to conclude that the same problems can’t happen to you. They can.
Little or no track record
Some of the most promising low-cost franchise investments on the market are new and don’t have much of a track record. That’s not fatal, but it should alert you to an elevated risk.