5 Red Flags to Look for In Franchise Opportunities

Although franchising is a great opportunity, choosing the best franchise is a huge part of how successful you can make your franchise. With over 4,000 franchises to choose from, here are 5 major red flags to look for when deciding which franchise to own. 

1. It seems “too good”

If the franchise seems too good to be true, chances are that it is. If a franchisor neglects to point out the flaws and disadvantages of their franchise, this stands out that there may be a major unlying issue in the franchise. Every business has its downfalls, but being transparent about them is necessary in a well run company. 

2. Franchise turnover rates

Like turnover rates with employees, it is important to note the franchise turnover rates. The  Franchise Disclosure Document (FDD) is a document given to you from the franchisor that must disclose information about past franchisees and the reasons they left the system. When going through the decision process, make sure to go through the reasons these past people left to see if there are significant findings in the data. A high turnover rate can be a red flag for poor franchise systems. It’s important to mention that the resales of successful franchises is a different story and may be considered a green flag.

3. Franchisees who are not happy

Going off of the last point, reaching out to other franchisees for the company you are considering can help your decision. If they disclose to you that they are not happy or regret their decision, this is a red flag. However, it is important to complete research before. On one hand, this franchise can actually be faulty and should be steered clear from. On the other, maybe this franchisee is not completing necessary steps to be successful for his franchise. He could be cutting costs in bad places or not listening to his employees to solve certain problems. Nevertheless, reaching out to more than one franchisee is recommended to battle this problem.

4. Litigation history

The Franchise Disclosure Document should be examined to see whether the franchisor has a history of litigation. A general rule to keep in mind is more than one or two cases per 100 franchisees could indicate a red flag. Make sure to research the contested issues to see the actions brought by the franchisees against franchisors. For example, issues about franchisees who aren’t paying their bills versus issues brought by franchisees alleging misconduct by the franchisor are different kinds of issues that will tell more about these red flags and how bad they really are.

5. Unprofessional or overly aggressive franchisors

When going through the evaluating process of a franchise, it’s in your best interest to ask many questions and form opinions from their responses. If the franchisor is evasive, unprofessional, or aggressive, consider it a sign that you should look into a different franchise. This isn’t saying your next franchisor needs to be the nicest person on the planet, but if they’re not courteous and cooperative during the sales process, there’s little chance they’ll be any easier to deal with when you’re a franchisee.

When looking for your next franchising opportunity, know that I will always make sure to help assess the red flags you discover. As you move further along in the process, make sure to point out these red flags right away, because the last thing you want to do is worry about it later when it is too late. Reach out to Giuseppe Grammatico today to get the process started and book a call or contact me today!