Of all the business models out there, franchises tend to be one of the most stable of them all. You’re buying from a proven company with a strong track record and using that momentum to build your own business. Sounds pretty solid, right?
Still, like any industry, a few bad apples can sneak into the mix. In other cases, an opportunity might look good on paper but not be a good option for you or your personal preferences. These are good reasons to do your due diligence before buying a franchise. As you’re researching, make sure to watch out for these four signs that the franchise might be a bad investment for you.
1. The Opportunity is Too Good To Be True
When making as major of a purchase as buying a franchise, you should listen closely to your gut. If your gut is telling you that an offer is too good to be true, chances are it is. This is an excellent cue that you should do a little more investigation. Chances are there are some downsides hidden among those bright shining opportunities that you should be aware of before you buy.
2. You’re Uncomfortable With the People At the Parent Company
No one likes to feel pushed into something before they’re ready to commit. The same is true for franchising. If the person at the parent company who you’re working with is aggressively trying to get you to buy before you have all the facts, it might be time to look elsewhere. This is usually a sign that they don’t have your best interests in mind.
The good news is, if you’ve made it far enough to pursue a franchise opportunity at that company, you’re committed to a specific industry and type of business to enter. Look at the other franchises in that same industry. Chances are great that you’ll find another one that’s better suited to your communication style and preference.
3. You’re Hearing Negative Feedback From Current Franchisees
Very few people know what it’s like to live, eat, and breathe a specific franchise, so if the people who are walking the walk as franchise owners are giving you warning signs, it’s probably time to run.
Doing your due diligence by talking to current franchisees is wise. It lets you know whether the opportunity looks better than it is and helps you anticipate realistically what to expect once you sign the franchise agreement. Continue to talk to franchisees in your search to get a better idea of what’s to come before you sign the paperwork.
4. Something Feels Off in the Fee Structure
In some cases, franchisors will be focused more on up-front fees rather than royalties. That’s a major red flag because any franchisor worth their salt knows that the true sustainable value lies in royalties and not the initial buying fee.
In other cases, a franchisor might be overly aggressive about discounting fees and royalties. Although helpful for you initially, this type of aggressive approach should be a warning sign. If the franchise is new or trying to break into a particular market, the strategy might make sense. However, if it’s well-established, the franchisor will likely have other motivations for wanting to discount fees and royalties.
Are You Heeding the Warnings?
Not every franchise is a perfect fit for every person. By listening to your gut and these warning signs, you can avoid the temptation of going after something that looks good on paper but won’t be the right match for you down the road.
Susan Guillory is the President of Egg Marketing & Communications, a marketing firm specializing in content writing and social media management. She’s written three business books, including How to Get More Customers With Press Releases, and frequently blogs about small business and marketing on sites including Forbes, AllBusiness, The Marketing Eggspert Blog, and Tweak Your Biz. Follow her on Twitter @eggmarketing.