Opinions expressed by Entrepreneur contributors are their very own.
Everyone knows that in each business, there are good, sturdy, well-managed corporations, after which there are some … not so good corporations. That is additionally true on the earth of franchising. The problem could be figuring out what to maintain an eye fixed out for — particularly in case you are exploring franchise ownership for the primary time.
Whereas there are many sturdy franchisors, it is essential to know, significantly for aspiring franchise house owners, that there’s a lot of labor upfront to search out the appropriate match. As a franchise advisor for a few years, I’ve developed an inventory of a number of warning signs to maintain an eye fixed out for when evaluating franchise alternatives.
Listed here are 4 purple flags to be careful for.
Associated: Take These 5 Essential Steps Before Signing a Franchise Agreement
1. The present franchisee suggestions is damaging
Whereas going by the discovery process, you should have the chance to talk straight with present franchisees. With out being impolite, ask the sincere and blunt questions. A greatest observe is to ascertain rapport and ask extra common questions firstly, then work as much as monetary questions on the finish. If present franchisees are sad with the guardian firm or they do not see the worth of their franchise, it is a main purple flag.
Ask these three inquiries to present franchisees:
- Would you do it once more?
- Are you contemplating growth?
- How do I fail at this enterprise? (This query enlightens you concerning the vital talent or trait it’s good to achieve success in that system.)
2. Franchisor management makes you uncomfortable
Belief your intestine! In the course of the discovery course of, you should have the chance to satisfy with franchisor management groups. If you’re getting dangerous vibes from the management crew or their representatives, take heed to your instinct. Consider the franchise construction as a enterprise partnership. You each carry one thing to the partnership and may have obligations to the opposite — so are these folks you’ll be able to companion with? Discovering a trustworthy company is significant.
I do know this could sound considerably esoteric, but it surely’s essential to know this franchisor’s monitor file. Is that this their first rodeo? Extra particularly, have they got a confirmed monitor file for achievement in franchising? They might be good at delivering their service to clients, however as soon as they franchise, their new enterprise is supporting franchise house owners, which is a distinct talent set. It is essential to look below the hood and see whether or not this franchisor is a stand-alone or in the event that they produce other profitable corporations below their umbrella of operations.
There are franchises on the market that pop up rapidly and haven’t got the backing essential to earn your belief. Be sure you dig deeper into the franchisor and their management crew earlier than deciding to purchase that franchise.
Associated: Beware of This Type of Entrepreneur When Franchising
3. A questionable price construction
It is anticipated {that a} franchisor would require an preliminary price in addition to royalties, but it surely’s essential that you simply perceive the price construction upfront. Whereas conducting due diligence, when you discover {that a} sure franchise has considerably increased charges than comparable franchises, this could make your ears perk up.
Gadgets 5 and 6 of the Franchise Disclosure Document (FDD) are charges that you simply pay to the franchisor. It is essential that you simply take time to evaluate and examine these things. Perceive, not all charges to your franchisor are dangerous — however it’s good to perceive what you might be getting for that price and the way it will be corresponding to how you’d do it by yourself.
For instance, say you have a look and see a line merchandise you might be paying the franchisor referred to as a “tech price.” It is price your time to think about what this price is definitely masking. Steadily, a franchisor may have the sources to buy top-of-the-line expertise instruments as a result of they’re buying it on a big scale designed to span the wants of their total franchise operation. Compared to what you’d spend for the same lower-end tech product available on the market, it is less expensive and extra environment friendly. On this case, that “tech price” is price it.
4. Gross sales course of is shady
A superb franchise goes to be as choosy about you as you might be about them. If it feels just like the franchisors are promoting you a nasty used automobile, that is a nasty signal. A superb growth rep won’t simply push somebody by — they are going to be evaluating your work historical past, persona, expertise, monetary place and experience. All of those facets are doable belongings to their model and they need to be rigorously contemplating the people who will probably be representing that model. If you’re getting low-cost gross sales ways and you’re feeling pressured, that is a purple flag.
For instance, when you want a brand new automobile and try to select between a Toyota Camry and a Honda Accord — each equally evaluated vehicles — however you will have a horrible expertise at certainly one of these dealerships, you are in all probability not going to purchase that automobile.
If a franchisor has a nasty gross sales course of, that may be an indicator of bigger considerations. You need to anticipate professionalism, getting your questions answered and a sense of transparency. A part of the gross sales course of also needs to embody connecting you with different franchisees of their community.
Associated: 4 Things I Wish I Knew Before Starting My Franchise Journey
What is named validation, or talking with franchisees in a system, is a tried and true a part of the gross sales course of that I contemplate to be probably the most essential components. In any case, what higher technique to be taught the great, the dangerous and the ugly a few model than by talking to individuals who already personal the model? If a model is retaining you from speaking to different franchisees of their community, that is an enormous purple flag. A superb franchisor will attempt to get you in touch with as many franchisees as doable.
On the finish of the day, it is unimaginable to anticipate each doable purple flag; nevertheless, when you find yourself asking the appropriate questions and know a number of the telltale indicators to be careful for, you are forward of the curve. To keep away from these purple flags (and others), working with an skilled franchise advisor could be a nice security web.