[Franchising Red Flags] What To Look For In Franchise Opportunities W/The Franchise CoachApril 24, 2022
So, here’s the last thing I want to hear after awarding a franchise…
“I didn’t know that after getting into this”.
The first to examine is the Franchise Disclosure Document — http://blog.bintheredumpthatfranchise.com/franchise-glossary-25-franchising-terms-entrepreneurs-must-know/. Good franchise companies will encourage you, the candidate to read the document thoroughly, maybe have a lawyer read it and then come back to the franchisor with questions in relation to the FDD. It’s a definite red flag if you don’t feel the FDD is completely transparent.
You’ll want to know if there is any litigation referenced in the FDD. Has anyone sued this franchise company and why? If there is litigation going on, you need to find out why?
Another red flag is how indebted is the franchisor? Are they at risk? Business debt is much different than personal debt. Business debt helps you build and grow your business; however, a franchisor that has been in business for a long time should not be in debt and should be financially stable enough to support their franchise operators.
OK… This is an important one, so pay close attention…
Validation. It will be the most important thing you’re going to do in your research and due diligence. This is speaking to the franchise operators in the particular franchise company. Try to speak to franchise operators that are successful and others that aren’t as successful in order to understand both sides of the spectrum; this is typical in any franchise system.
The final red flag is a biggie. You want to ensure the franchise company you are potentially investing potential live savings into is awarding you the franchise agreement, not selling you the franchise agreement. Find a good franchisor that the process is one that awards franchises and do as much due diligence researching the candidate as you would, investigating the franchise company.
Discover more here http://blog.bintheredumpthatfranchise.com/starting-a-franchise-here-are-5-franchise-red-flags-to-avoid/