red flags to look out for while buying a franchise


Franchising is a good business option with lesser risk than a completely new venture. Picking a franchise can be challenging; there are thousands to choose from. There are hundreds of franchises from which to select. As a prospective franchisee, you want a franchising business that is well organized, offers ample financial knowledge and interacts well with its licensees. With hundreds of franchise opportunities available, removing options is one of the best ways to make a selection.

Red Flags To Be Wary Of

If you see any of these indicators, it’s a solid indication that you should research more — or, in some circumstances, eliminate options from your list. It’s crucial that you do your due diligence in advance so you can make a more prudent decision.

1. The Company Avoids Revealing Financial Data

You must be convinced that investing in a franchise opportunity will result in financial success. Why would a franchisor be unwilling to offer you the financial statistics of its other franchisees? If a company is new to the franchising model, it won’t have any statistics to show you, but if it doesn’t, it may be because the figures aren’t particularly compelling.

2. There Are A Large Number of Existing Franchises Up for Sale

Determine who is selling existing franchised locations of a corporation. Reach out to any of these franchises to determine why they are abandoning ship. When numerous sites of the same business are for sale, it is typically a cause for concern unless a global factor, such as a poor economy, is hurting them all.

3. The Company’s Royalty Fees Are Considerably Higher Than Others

Knowing what other similar franchises charge franchisees might raise a red flag if you encounter a business that charges substantially more. Ask why the prices are higher. Perhaps there is a rational explanation. Maybe the additional cost covers additional marketing expenses or something else. Nevertheless, if the cost of participation is not justified for you, you should go on.

4. Franchise Owners Are Not Proactive With Providing Information

When studying possible franchises, it might pay you to become a super-detective. In franchise-operating business owners’ interviews, determine how they feel about working with the company. Ask whether they would do it all over again. Ask why they are hesitating, and integrate it into your own choice.

5. Diminished Positive Brand Recognition

Consider the brand’s reputation in recent years. Are there disputes that have damaged its reputation? Have you seen any advertising and marketing campaigns, or do you sense that the brand is shrouded in cobwebs?

As a franchisee, you’ll rely on the more prominent brand to assist you in advertising your site, so you should select a franchise with an established reputation in the eyes of the public; otherwise, it will be an uphill struggle you’ll never win. These steps are an excellent way to build a more solid base rather than start on shaky ground.

Some of the above aspects don’t automatically mean a franchise is not good. However, it could indicate problems in some cases.

Never Hurry With the Due Diligence Process

Only you understand the particular requirements you have for a franchise. However, generally, you will want a business that will generate income and is quite simple to manage. Don’t be shy about asking any questions, as it will help you in making an informed choice. Keep a list of essential points ready, check them, and tick them off the list. Being methodical and unhurried will ensure thoroughness and help you determine whether a franchise is a suitable choice for you.

Not every franchise is a good fit for everyone, so keep looking until you find the one that’s just right. Speak with people from the industry and get legal and accounting advice from professionals. The more diligent you are with following these basic checks and processes, the better your chances of avoiding undue risks and making a success of your new venture.

If you want more franchising information, contact the experts at The Franchise Institute. You can call us on 1300 855 435 or fill in this contact form, and one of our experts will contact you as soon as possible to answer all your questions about franchising.

Thanks for reading,
The Franchise Institute Team
1300 855 435

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