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6 Signs A Particular Franchise System Isn’t For You

By: SmallBizClub


Running a franchise may appear to be a lucrative option for some. However, it can be challenging due to the effort required to be successful. 

Choosing a franchise is also equally challenging since you have a wide array of options to choose from. If you intend to open a franchise soon, choose a well-organized franchising company that offers financial opportunities and communicates effectively with its franchisees.

How Does Franchising Work?

If you’re new to franchising, it involves forming a partnership with a corporate brand to open a business under their umbrella. You become a franchisee when you purchase and manage a location that uses the franchisor’s brand name, products, logo, services, and other assets. 

Over the years, franchise businesses have had higher success rates than start-up businesses. Most find financing a franchise manageable, and investing in a franchise may be less expensive than starting your own business from scratch. 

If you’re wondering how much do franchise owners make, it depends on the franchising company you’re considering. As a result, it’s vital to assess your options to choose the ideal one. 

If you decide to invest in franchising, you usually have to spend money before you can start earning. You must pay franchise fees to operate a franchise location as a franchise owner. Generally, the cost of owning a franchise will vary. Some franchising companies will charge an initial fee as well as ongoing marketing and royalty fees, which are frequently determined by the monthly income of your franchise location.

6 Warning Signs That You Should Avoid A Franchise System

One of the ideal ways to assist you in making the right decision in choosing a franchise is to reduce the number of options available to you. Knowing the signs that a franchise system might not be suitable for you is one approach you might want to try. With that said, here are some warning signs of a possibly undesirable franchise company to keep in mind.


  • The Franchise Company Is Unable To Disclose The Figures


Investing in a franchise can be a profitable option if earning money is your priority. Before you sign on with a franchising company, it’s crucial to know the financial details. When the franchisor appears hesitant to present financial data from its other franchisees, it would be best to inquire why. 

If a company is new to franchising, it’s understandable that it will have no data to supply you with. However, if this isn’t the case, the reason could be that the figures are unfavorable.  


  • Franchise Owners Couldn’t Share Anything Positive 


If one of your objectives is ensuring a good start with a franchising opportunity, knowing everything about the company can help you make the best decision. Putting in the time and effort to conduct thorough research will undoubtedly pay off. 

When you have the opportunity to interview business owners who own a franchise from a company you’re interested in, you can get a sense of how they like working with the company. You might want to include an inquiry about whether they would work with the company again. If they answered negatively, ask why and incorporate that into your decision.  


  • A Franchise Charges A Higher Royalty Fee Than Others


While selecting a franchise, you may encounter some companies with a cost-effective range on the royalty fee while others are significantly high. Consider it a red flag if you encounter a company that charges a higher royalty than others in the same industry. 

It may be best to ask why they charge a high royalty fee since there might be a logical reason behind it. In some cases, the company may need to cover an additional expense, such as marketing fees or another factor. Still, if the price you’ll have to pay doesn’t seem reasonable, you might be better off moving on to the next franchise company on your list.  


  • Several Existing Franchises Are Available For Purchase


Make it a priority to determine who’s selling the existing branches of a company’s franchise. You might want to contact some franchisees to see if they’re leaving. If they are, find out why.

Unless a global factor is affecting the company, such as a poor economy, multiple branches of the same franchise going up for sale is usually cause for concern. 


  • Determine A Company’s Solvency And Long-term Viability


When selecting a franchise company, it’s crucial to consider two vital factors: solvency and sustainability. Solvency pertains to the ability of a company to meet its long-term financial obligations. On the other hand, sustainability is the capability to maintain the business for a long time.

Generally, solvency is a crucial factor, although there are scenarios in which insolvent franchisors can be successful. When a franchising company is going through frequent financial restructuring or not doing anything to improve its current financial condition, it can be a red flag.  

As for sustainability, you need to know if the franchise concept is a recent fad or out of date. In either case, it’s best to ask whether the business model will likely last for the long haul. For example, consumers enjoy frozen yogurt, but it may not be the same in a few years. When a franchising company isn’t making an effort to maintain the relevancy of the concept or if the model is outdated, these are clear signs of trouble along the way.  


  • Positive Brand Recognition Is On The Decline


Think about what you’ve heard about the company you’re considering in recent years. It’s best to know whether there have been any lawsuits, marketing initiatives, or if you believe the brand is no longer functioning. If their brand recognition is declining, consider moving on to your other franchising options. 

Final Thoughts  

If you intend to become a franchisee, work with a well-known or large company. Otherwise, it could be an uphill struggle if you settle for less. Although the factors above don’t necessarily imply that a franchise is undesirable, they may indicate problems in certain circumstances. Only you know the specific criteria you want in a franchise. Nonetheless, it would be best to ascertain that you can earn and effectively manage the franchise of your choice.

Author: Jeremy Cross is an entrepreneur and business coach. He shares his expertise by writing blogs and conducting webinars. During his free time, Jeremy loves hiking, kayaking, and mountain climbing.

Published: July 21, 2022

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