Starting a search for a new franchise is exciting. You’re hopeful and enthusiastic but equally cautious. It’s important to do your due diligence as you decide which franchise is right for you and which one you’ll be able to scale quickly while also enjoying the work.
As you navigate the franchise selection process, look for red flags in certain key areas. If something feels off, dig deeper and unpack why those flags are appearing so you can be sure you make the best decision for your future.
Step 1: Review the Investment Structure
The first critical area to examine is the complete financial picture for your franchise investment. Many prospective franchisees focus on the franchise fee, overlooking the total investment needed. A reputable franchisor will provide a detailed Financial Disclosure Document (FDD) outlining:
- Initial franchise fee
- Equipment and inventory costs
- Real estate and construction expenses
- Working capital requirements
- Marketing fund contributions
- Ongoing royalty structure
Red Flag: If a franchisor is reluctant to discuss complete costs or presents vague financial requirements, this suggests either poor organization or intentional opacity—neither of which bodes well for your investment.
Evaluating Franchisee Support Systems
One of the biggest questions potential franchisees is about the type of training and support they’ll receive immediately after signing with the franchise. The franchise system's support infrastructure directly impacts your potential success.
Franchisors typically provide multiple layers of support, each of which should be considered and analyzed for any potential red flags where you’ll be left to navigate the process alone.
Initial training: These training sessions typically last two to four weeks. It could be a red flag if the training is shorter than two weeks combined.
Site selection support: Franchisors often provide a professional demographic analysis of the region to help you find the most profitable site. If the franchisee doesn’t have a dedicated real estate team, you might want to ask how they assist in this area.
Construction: Franchisors want your store to be visually branded, so they often detail build-out specifications when you invest. If these specifications aren’t available or there aren’t preferred vendor relationships to get the materials needed, you might want to investigate how you’ll be expected to navigate the site build-out process.
Operations: Franchisors will provide detailed manuals and procedures, giving you the plug-and-play system you want when you invest in a franchise. If those documents are outdated or incomplete, you’ll know you spotted a potential red flag.
Marketing support: Consistent marketing and branding are crucial to the franchise experience. Therefore, franchisors provide national and local marketing support. If no structured marketing program is in place, it could be a red flag that you’ll be left to handle this critical area alone.
Ongoing support: One of the benefits of franchise ownership is ongoing professional training. This includes regular field visits and consulting. A red flag pops up when you’re promised minimal post-opening interaction.
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Current Franchisee Satisfaction
Perhaps the most telling indicator of a franchise system's health is the satisfaction of existing franchisees.
To reach out to current franchisees, gather the contact information for a variety of owners ranging from recent investors to proven units and multi-unit owners. You may also want to talk to former franchisees if you can find their contact information.
While talking to these owners, look for red flags in their feedback including:
- High turnover rates
- Difficulty reaching profitability
- Inadequate corporate support
- Poor communication from headquarters
- Unexpected additional costs
- Marketing fund mismanagement
The Franchisor Relationship
The chemistry between you and the franchise leadership team should be considered. Watch for warning signs from the franchisor that may leave you feeling like something isn’t quite right. One warning sign is pressure to sign quickly. You might also be reluctant to answer direct questions or lack transparency about their systems. These red flags should be considered as you decide if the franchise is right for you.
Final Considerations
A legitimate franchise opportunity should show the clear financial performance of the franchise and what’s included when you join. Without knowing what training and support infrastructure is available or the economics behind the franchise, you will not have a clear picture of what you’re walking into. Equally important is the experience of other franchisees. Be sure to listen carefully for red flags, either spoken or unspoken, when interviewing current franchise owners.
Remember: Due diligence isn't just about checking boxes—it's about ensuring that you are investing in a system that positions you for success while aligning with your business goals and values. If you encounter multiple red flags during your research, consider it a strong indicator that you should either delay your decision or explore other opportunities. The right franchise partner will welcome your scrutiny and demonstrate a vested interest in your success.
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Kimberly Crossland is the founder of Roadpreneur and Cruisin' + Campfires, two companies designed to keep families together and living in freedom through travel and entrepreneurship. The goal of both businesses is to inspire meaningful change through the power of a strategic, thoughtful approach to life and business. In her free time, you can find her looking for a new adventure together with her two boys.