How to Know that a Certain Franchise is not a Good Investment for You

Franchise Investment

Needless to say, Franchise Investments are a great recourse for those who wish to take a jump into the domain of business, while not having to incur the risks of having to begin with entirely new concept.

The shining fact about franchising is that on having invested into a trusted and well recognized brand, the risk of loss reduces and possibility of sustainability and profit multiplies.

However, no matter how affluent a brand franchise may seem, one should watch out for signs indicating that a particular franchise investment idea may not be worth. your time and money.

The present blog explicates upon how to know that a certain franchise opportunity is not worthy of your resources.

Insufficient Level of Training and Support Provided by Franchisor:

While franchising, you need constant support from the franchisor for mutual benefits. Franchisor support and training plays an inevitable role in the success of a franchise.

It helps your franchise in its early stage and thereafter. If anything about the proposed training program appears to be inadequate, too short and hurried, or too long and dragged out, speak to current franchise partners to estimate their satisfaction with the training.

Also ask franchisee if they receive ongoing support or not from trained professionals. If you find that the franchisor’s level of training and support is inadequate for your business, then don’t move forward.

A problematic History:

Ups and downs are normal for a business, but you should avoid a company that has been consistently performing poorly.

Do research upon how much the median franchisees make for an estimate of your probable income. Do investigate about number of lawsuits the company has been involved in.

All businesses experience litigation in today’s sue-happy world, but there are ways to avert most cases. Several lawsuits, especially close together, can signal a deep-rooted problem.

If franchisees have not stayed long with the business, there may be a good reason behind it. However, note that low-cost franchises generally experience a higher turnover rate, so look at numbers proportionally.

You can definitely ask additional questions to receive enough data so you can make an informed decision.

Franchisor’s Financial Instability:

Some franchisors count on investors to help them stay in business, even promising financial support that they can hardly afford. 

Have an experienced financial representative carefully review the franchise’s disclosure document to determine a franchisor’s financial stability.

If you think a franchisor needs you purely for survival purposes, find another franchise. You will most probably have a better opportunity to succeed with a franchise willing to grow and expand its already rising business.

Franchisor Pressure:

Before finalizing an investment, do take your time and review all information. You can and should request additional time, when you need more time and the franchisor is pouring on the pressure.

If franchisor refuses and insists that you finalize the deal then and there, walk away from the franchise. A franchise worth your investment will not come with pressure for sure.

Bad word of mouth:

Reviews and feedback can help you invest into the right franchise in more than a single way. Negative feedback from current or former franchise partners may signal a bad franchise. 

If you receive myriads of negative feedback from other franchisees within the franchise network, you should rethink to invest in that franchise.

Note the complaints lobbied against the company and the way the company responded to each of them.

You should avoid a franchise with a legion complaints and poor responses to those complains. Negative feedback about their quality, profitability, professionalism, etc. could be a red flag to invest.

Excessive Litigation:

Steer clear of investing in a franchise that has been on the receiving end of lawsuit after lawsuit. You will be in a better position if you keep your money away from any franchise that is regularly cast as the defendant.

However, on the flip side, don’t necessarily miss a franchise that has initiated number of lawsuits since many a times firm does so to defend its brand which is a good sign. You can acquire such information from a legal expert for it can help you to a great extent.

If you identify these warning signals, it will help you decipher if a franchise is the right fit for you.

Dhinal Baxi

Dhinal Baxi is a founder of franchise Insider. As a founder, he has served hundreds of clients. His experience from the financial sector has helped them to achieve great success in the franchise world.

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