When to Take Your Money and Run

When performing extensive research on a potential franchise opportunity, there are many things to look for. However, there are a few aspects that, if a franchisor possesses, should ring warning bells. The following are warning signs that the franchise system is not healthy or not successful for investors:

A pattern of resolving franchisor disputes aggressively

Some franchisees have a history of suing its franchisees to collect fees or enforce the terms of the franchise agreement. All of this will be revealed in Item 3 of the UFOC. When you see a large number of disclosed cases, ask the franchisor and franchisees what it means and why. Always chat to franchisees for their perspective on the matter.

High turnover rate

When examining the UFOC, turn to Item 20. This will inform you of the number of franchisees who have left the system in the past economic year, as well as their names and addresses. If the amount is high, e.g. more than 20%, call those ex-franchisees and ask them why they left. In fact, chat to quite a few people who left. A high turn-over rate caused by business failure or franchisee unhappiness is a major cause for concern.

Disappointing franchisee reports

When chatting to franchisees, assess their view of the experiences they had with the franchise program. Understand any problem or gripe they have with the franchisor. Do not think that the same problems probably will not happen to you because it can!

Little or no track record

Many promising franchise investments are new and do not boast much of a track record. This is not fatal as they are new. Yet, is should alert you to an important risk.

Little training and no build-out support

When building the franchise, most franchisors want their franchisees to look the same nationwide. Therefore, for this to occur, most provide store build-out or construction. If the franchise you are interested in does not provide this service, you would be required to find the contractors and wholesalers who can provide the things you require. This may cause major stress and frustration. To prevent this from happening, rather choose a franchise that provides the necessary support or a franchise which does not require a specific appearance. Always choose a franchise that provides extensive training and full support as it aids to the success of your franchise business.

These are important things to consider when choosing a franchise opportunity.

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