Considering buying a franchise? No doubt you have done your research to find out what opportunities are available and to find a business that matches your interests or skills.
However, finding the right fit is only one part of the work to do before signing an agreement. You also need to be aware of the warning signs of a bad franchise. Even national chains are not guaranteed to be the best choices simply because of their wide presence. Many factors contribute to the success of a franchise, so watch for the following red flags as you consider your options:
High turnover rate
Of course, people come and go in the business world, but a high rate of turnover may indicate a deeper problem. The issue may lie with the business model, training or franchisor. Consider speaking with former franchisees to find out why they changed direction.
It is impossible to completely avoid litigation; however, many lawsuits are preventable. Look at the franchise’s legal history to determine if it was at fault in most cases. Litigation can reveal how the company treats its franchisees, employees and customers.
Consistently low success
Has the business been underperforming for a long time? The franchise may need to revise its model or improve its support to be successful again. Discover the income of the median franchisees to learn how much you would be likely to make.
High-pressure sales pitch
Purchasing a business is a major event that requires care and caution. Stay away from any franchise that guarantees immediate success, puts pressure on you to sign the agreement or offers numerous incentives to sweeten the deal. Also, have an attorney carefully review the contract to ensure it does not have ambiguous or illegal terms or is not inconsistent with the sales pitch you received.