The idea of becoming a franchise owner can be quite enticing, especially in these challenging and uncertain economic times. Franchises can be a path to becoming a business owner without many of the complications associated with building your own company.
When you go into the franchise world, you have a ready-made brand and all its successes to back you up. It’s not uncommon to have support on everything from day-to-day operations, training and accounting to marketing and sales strategies.
Of course, there’s also the appeal of being your own boss, which can, although not always, protect you from the ups and downs of corporate life, with its layoffs and the many other unpredictabilities of the economy. It’s nice to know too, that, when your franchise is successful, you’ll be directly reaping the financial rewards.
Another attractive feature of franchise ownership is the opportunity to pass down your success to your children, who can carry on the business to build wealth and stake out a territory of their own, if they chose.
While there are a number of positive aspects to consider when evaluating buying a franchise, there are also several potential risks associated with such an important and expensive venture.
Before making any decisions, take a long, hard look at what’s being offered and, experts agree, don’t let your excitement prevent you from seeing warning signs along the way.
According to those who have spent much time examining the growth in franchises, there are a number of red flags to be aware of:
1. As the saying goes – “If it sounds too good to be true, it probably is.” If you’re exploring options with a potential franchise founder, be sure he/she is willing to discuss the problems that come along with any business. If they won’t, that’s a sign of a problem.
2. Successful franchises are built and sustained on royalties. If you encounter a franchisor who is intent on maximizing upfront fees, that could spell trouble.
3. Before you enter into a franchise agreement you will, of course, want to speak to other franchisees. If the franchisor struggles to provide you with satisfied clients, you may want to move on.
4. Look for open communication between franchisees and the franchisor. Without that, you may be headed down the wrong path.
5. And, if you find the franchisor is quite excited and eager to discount fees and royalties, take note. While there may be good incentives for them to do so, it still should give you pause to explore your options more thoroughly. Take your time and never allow yourself to be rushed.
As with any major investment and long-term commitment, it’s well-advised to consult with a financial planner and tax advisor. We’re always here to help.