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Article-How To Detect A "Bad" Franchise Brand Or System
How To Detect A "Bad" Franchise Brand Or System
When doing your research for a fit between your “ideal” business and a franchise offering, there are several warning signs that can alert you that the franchise brand may not be a good fit. Any one or two items below may not be enough to scare you away, but should three or more occur during your research, I would strongly recommend looking elsewhere.
- First call sounds like a sales person: When you are inquiring about a franchise, you want someone to help you get all the information and relevant facts to help you make an informed, business decision whether this business model will be a good fit for you. You do not want to be talked into buying a business.
- The website does not work: If a franchise marketing website has dead links or incorrect information, the franchise brand has not made a commitment to franchising. I would be alarmed to join a company as a franchisee when franchising is a after thought rather than the focus of their growth
- Extensive Litigation: No franchisor is immune to a lawsuit from a franchisee, even the best have lawsuits. If the Franchise Disclosure Document (FDD) has six or more I would be extremely alarmed. If too many seem to have the same theme, I would stop researching the option at this point.
- Fees, Fees, Fees: Some franchisors have too many fees in addition to the typical royalty, ad fund and IT fees. I would not eliminate a franchise based on this alone. I would investigate to determine if the franchisor is trying to find multiple ways to earn money from its franchisees outside of the royalty.
- Financial Performance Representation Missing: In the FDD it clearly states that the federal laws allow franchisors to post historical, factual performance information about its corporate and/or franchise units. If a franchisor has been in business for more than two years and chooses not to include any information in this section, it concerns me greatly. If the numbers are good why not show them?
As a candidate considering investing $XXX dollars, I am not looking for guarantee of success but an indication of what the business has done historically. If there are no representations in this section and the Development Agent verbally gives you information, I would be even more alarmed. No financial representations are to be shared that do not appear in the FDD.
- Validation calls are lukewarm at best: The three best questions to ask a franchisee already in the system are:
- Did the franchisor deliver on what was promised?
- Knowing what you know today would you do this again?
- Would you recommend to your friends and family to join this business?
If you can’t get straight answers on these simple questions, I assure you that you are not getting the validation you need to make a good business decision.
- You feel something was wrong when your visit the corporate office: Your instinctive reaction is the #1 indicator as to whether you should join or not join a franchise business. If you can’t look at the key executives in the eye and feel good about the long-term relationship that you are about to form, you need to follow you gut.
Investing in a franchise is a journey. In your search for the right franchise, you can quickly avoid some of the franchise brands based on some of the items above. Then you will be able to focus your time on the best brands and make a selection. Once you select the right franchise for you, the hard work begins to get trained, open and run your business.
