It’s easy to get excited about investing in a franchise—just look at the numbers: There are 757,000+ franchised small businesses in 75+ major industries; franchises account for nearly $1 trillion in U.S. retail sales and for more than 40% of all U.S. retail sales; approximately 1 of every 12 retail business establishments in the USA is a franchise, and they employ more than 8 million people!
But which franchise to buy?
While all of this speaks well for franchising, not all franchises are worthy of your investment. Be careful. Do your homework before you buy a franchise. When you’re considering a franchise investment, avoid these 7 warning signs:
- The franchisor seems too eager to sell you a franchise. You’re getting more emails and calls from the franchisor than you believe are necessary. Do you want a franchisor who may need you more than you need them?
- You can’t get the franchisor’s disclosure document. In the USA, once serious discussions begin between a franchisor and a prospect, the franchisor must provide the FDD, free. Can’t get it? What’s the franchisor hiding?
- Existing franchisees either won’t talk to you, or they have negative things to say about the franchisor and/or the franchise brand. Keep in mind that sometimes franchisees do not want more franchisees in the network. It’s important to call a representative sample of franchisees.
- The franchisor has sold many more franchises than it has opened. Why? If franchisees are waiting for months to get into business, what’s going on?
- The franchisor tells you which franchisees you can talk to as you conduct your due diligence. It’s okay for a franchisor to direct you to franchisees whose backgrounds are similar to yours, or to bring franchisees to Discovery Day to meet you. But make sure you randomly select franchisees and talk to them about investing in the business before you buy the franchise.
- You feel pressured by the franchisor or the franchisor’s sales representative, including a broker. “There’s only one franchise available for your market and you’re not the only person who’s interested in it.” You should be more interested in knowing if you are the best-qualified person for the franchise. Don’t buy a franchise under pressure.
- The franchisor isn’t interested in assessing your personality profile to see if you’re a good fit for the franchise. You can’t force a square peg into a round hole. Most franchises are fabulous opportunities, but for the right personalities. If your personality doesn’t match the requirements of the franchisor’s business, you lose!
There are more than 7 warning signs when buying a franchise and I discuss them in my best-selling ebook, Buy Hot Franchises Without Getting Burned.