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3 potential franchise red flags

On Behalf of | Oct 21, 2021 | Small Business Law |

For those hoping to build a business, opening a franchise location can allow them to build on the foundation of an existing brand. However, not every franchise opportunity provides a strong start for future success. What warning signs might indicate that you should walk away from a franchisor’s offer?

1. Has the franchisor been in the news for conflict with franchisees?

If you research the franchise corporation, do you see many different stories of disputes between their company and franchisees? This could be a warning sign that the corporation does not foster healthy franchise relationships or that they are prone to serious disputes that require court involvement to resolve.

2. Do they charge more than comparable corporations would charge franchisees?

Franchisees must balance a variety of fees, from startup costs to periodic franchise, technology and licensing fees as they continue operations. If the franchise corporation charges significantly higher fees than other, similar opportunities, they may not have the strong finances you would want in a franchise partner.

3. How high is their turnover rate?

Franchise locations may close for a variety of reasons, but if a franchise corporation has significant turnover it could be time to move on. This turnover could indicate that the market is already too saturated to successfully open new locations or that franchisor doesn’t offer appropriate support to franchisees. As Franchise Times notes, you may want to investigate whether the high turnover rate involves locations going out of business or the transfer of successful franchise locations.

Reviewing a franchise corporation’s offer is key. With careful research and attention to any potential warning signs, you can choose a business opportunity that lays the groundwork for long-term success.