Why Potential Franchisees Need to Be Careful

Owning a franchise can be a great way to get into business without having to re-invent the wheel. It’s nice to have an established brand and all its support as you get started. However, it can also be a would-be entrepreneur’s worst nightmare. There are literally thousands of companies that franchise their business model, and as with anything, only some of them are good. Even more than that, only some of them will be a good fit for you personally.

Think about it this way – When you open a franchise, you’re putting in all the money to get the business off the ground. It’s your money hanging in the balance if things go south. The franchisor has relatively little at risk because the fees you pay to get started are locked in. In many cases, the franchisor would actually make MORE money if you went out of business and they were able to re-sell your territory to someone else the next year, then another person the next year, and so on.  Not every franchise system works that way, but if you aren’t paying close attention, it’s something you might not notice.

How can you protect yourself?

  • Remember that you can negotiate your franchise agreement. Don’t sign until you’re happy with the deal.
  • Be wary of any situation where the franchisor doesn’t have a strong incentive to see you succeed.
  • Do your research online. Look for stories from other franchisees, and remember that the bigger the company, the more complaints you’ll see.  If it’s a small company and you see a ton of complaints, or if you see valid complaints that come up over and over again, check out some of the competitors. There might be a better fit.
  • Find out who would be your contact for the franchisor. Make sure it’s a good personality fit. True, people come and go at companies, but it’s helpful to at least START with someone who works well with you.

Any other suggestions? Feel free to leave them in the comments!

 

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