Buying into a franchise concept can be an attractive way for some people to become business owners. Ideally, a franchise company has a proven business model, saving new business owners the time, energy and money they would have to expend building concepts on their own.
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Unfortunately, there are many franchises that don’t live up to this ideal. Here are some warning signs to look out for when doing your due diligence research.
- 43% –of surveyed franchisees said their franchisors assisted them with training at a successful franchise
- 33% –received assistance with local area marketing
- 27% –received assistance with accounts management
- 26% –received help with legal documents
- 24% –received business plan assistance
- 23% –received recommendations about gearing.
Half the franchisees aren’t making the kind of money you want to make
Your franchise disclosure document should explain how much money a prospective franchisee could make, but the best source of information is existing franchisees. If it’s all frowns, walk away.
Franchisors blaming the franchisees
Don’t let a franchise company explain away the poor performance of franchisees by saying the franchisees don’t understand the system. If the franchise company can’t recruit correctly, why would you think its operating system is any good?
The model is in a perpetual state of flux
If the franchisor is constantly tinkering with the concept, you need to be asking why. The model simply may not work.
Compliance is more important than results
Does the franchisor company run a collaborative environment in which it listens to franchisee concerns, or is it a bureaucratic nightmare demonstrating low concern for franchisee results and relationships?
Keeping it in the family
Sometimes franchisors can be too cozy. Look out for franchisors laced with a lot of family. Too often, when franchisors choose relatives for positions, they’re ignoring the best people for the jobs. A good franchise company needs highly skilled and seasoned management.
This is what can make a franchise company stand out from the crowd:
The executives have integrity
Do the franchisees say they trust the people running the company? I would look for franchise companies with a sense of purpose and inspiration.
The business model is unique and timeless
If a franchisor is making money today, pay attention but don’t become enamoured. Will it make money seven years from now?
Related: Finding the Right Franchise Fit
The company respects its franchisees
McDonald’s is tops when it comes to collaboration with franchisees. Most multimillion-dollar McDonald’s ideas, including the fillet of fish sandwich, came from franchisees. Much of the company’s success has come from recruiting gifted franchisees.