4 Red Flags That Every Aspiring Franchisee Should Look Out For
“Am I making the right choice?” We’ve all reflected on this question at some point in our lives, but for prospective franchisees and small business owners, the stakes are much higher. After all, between 2006 and 2010, about 20 percent of franchises failed.
Everyone is afraid of the unknown to some extent, but business owners face an entirely different set of anxieties. No matter how well things may be going, it’s in every business owner’s nature to worry about the “what if” scenarios. What if the market crashes and your company can’t survive? What if a new competitor lures away your customers? What if new regulations hinder your ability to do business?
Even when you’ve done your research and it looks like a good plan, you can’t help but worry whether you’re making a mistake or missing a red flag. Some red flags, after all, are right in front of you, while others are recognizable only in the rear view mirror. So before signing on the dotted line, really examine the deal to ensure you’re not driving right into the danger zone, and look out for these four red flags:
1. The franchise is pressuring you to close. You know the feeling when a used car salesperson is pushing you to close the deal without giving you any time to think it over? You should never feel that way with your franchise.
Franchises that push their franchisees to close deals immediately are usually only looking for quick profits from franchise fees — they don’t have a franchisee’s best interests in mind. They’re not interested in growing with you over the long run, and they typically don’t vet their franchisees well, either. This amounts to a recipe for disaster, so if your gut is telling you something is off, it probably is.
If you’re unsure whether you’re being pressured to close (or if it’s just your nerves talking), try extending your purchase into the future. If the corporate team gets angry and continues to push you to close as soon as possible, walk away from the deal.
2. You don’t get any support. One of the greatest advantages of opening a franchise is that you have a support system of experts who’ve done it before and are willing to help. From financing and choosing a location to marketing and hiring, your franchise should offer some form of support to help you learn and grow — after all, the franchise succeeds when you do.
If your franchise leaves you high and dry and expects you to figure everything out on your own, that’s a bad sign. If the franchise’s team members aren’t willing to help you, it either means they’re inexperienced or they just don’t care enough about their franchisees — both of which are red flags.
Always ask as many questions as you can before closing the deal so you get a good idea of how you’ll be treated once you open the store. Good franchises will be able to provide plenty of information about fees, support systems, regulations, and requirements to put your mind at ease.
3. You’ve heard bad things about the franchise. It’s always important to do your research before opening a franchise. Also, talking to other franchisees and reading online reviews allow you to glean insights the company won’t share with you.
Most franchisees are happy to talk about their experiences, and they’ll tell you whether there’s a support system, how transparent and communicative the franchise is with franchisees, whether the customers are loyal to the brand, etc.
Great corporate teams will sometimes even provide contact information for other franchisees and encourage you to speak with them. You can also browse Facebook, Yelp, and other social media sites to see whether the majority of the reviews are positive or negative. While there will always be negative reviews from a few disgruntled customers, if the majority of them seem unhappy with the brand, that’s not a good sign.
4. Similar franchises have failed. Sometimes, a certain type of company just doesn’t do well in a specific area. Occasionally, that’s due to mismanagement, but if you see a slew of failed businesses similar to the one you’re planning on launching, consider it a possible red flag.
Success can also be dangerous, though. If a powerful competitor is thriving in your area, try to avoid setting up shop too close. It’s not always a good idea to keep your enemies closer.
As with any business venture, starting a franchise can be risky, so it’s completely normal for you to worry about whether you’re making the right decision. While you never truly know a business’s future, doing your research and understanding what you’re getting into will help your dream franchise beat the odds.
Marc Collopy is co-founder and executive vice president of sales for the Rockin’ Jump trampoline park franchise, a company dedicated to combining exercise and fun in a safe, clean, family-friendly environment. Rockin’ Jump currently has 35 locations nationwide, with an additional 80 under construction.