How to tell if a franchise opportunity is too good to be true

21/05/2018 17:00 | Start a business

How to tell if a franchise opportunity is too good to be true

Though there is an enormous number of legitimate, successful franchises out there, there is also a small minority that only wants to make some quick cash from franchisees and doesn't care about their success. This kind of franchise often tries to market itself as too good a business opportunity to miss. Here, we take a look at ten ways you can tell if a franchise opportunity is too good to be true.

1. Theyre not a member of a national franchise association

National franchise associations play an important role in ensuring ethical franchising practices are pursued, and high standards are maintained throughout the industry. In the UK, the British Franchise Association (bfa) carries out this role. The vast majority of successful franchises desire membership of the bfa because its a way of demonstrating that their business model is entirely legitimate. While not all non-affiliated franchises are scams, its often worth asking why a franchisor has chosen not to affiliate. In some cases, it may be because they dont meet the bfas exacting standards.

2. The franchisor is not communicative or conceals information

Though there is some information that franchisors are unlikely to reveal before a franchise or confidentiality agreement is signed such as the franchisors operating manual they should be forthcoming with most of the franchise information you request. Becoming a franchisee requires individuals to make an informed decision and franchisors should respect this fact. If they refuse to reveal pieces of information that dont impact their business operations, it might be a sign that theyre hiding poor performance or unfavourable contractual terms.

3. They put pressure on you to buy in

A legitimate franchisor has confidence in their business model and is unlikely to place any pressure on potential franchisees to sign up. The majority of the time, franchisors believe their business success provides justification enough for the franchise fee and will allow future franchisees to take their time coming to a decision. However, franchisors are likely to try and sell their business with a well-prepared and thorough sales pitch. Consequently, it's essential that you understand the difference between a sales pitch and unwelcome pressure to buy.

4. They guarantee immediate success and huge profits

Franchising isn't an easy path to instant wealth. While massive profits are possible, they typically require years of dedication and hard work to achieve. Any franchisor that promises sky-high financial rewards from day one is hiding something, and those looking to invest in good franchises should be wary.

5. Existing franchisees tell a different story

While many franchisors can deliver a clever sales pitch and win round potential investors with incredible tales of success, not all can ensure their existing franchisees will express the same opinion. Speaking with existing franchisees is a fantastic way of digging beyond a superficial sales pitch and learning a little more about the real franchisee/franchisor relationship.

6. A business is franchising too early

Though a business owner may believe their company is ideally suited to the franchising model, they should resist the temptation to franchise too early and instead prove their business can succeed on its own. Franchises based on new businesses are often trying to sell themselves with empty promises, as theres typically little data to back up their claims. Consequently, franchisees should act with caution when it comes to these types of franchise.

7. Their franchise fee doesnt reflect their market position

A franchisee fee should be set at a rate that reflects the value of the support and services a franchisor can offer its franchisees. Bigger, established franchises can offer franchisees better exposure, more thorough training programmes, and access to more impressive technology. Newer franchises aren't able to provide the same brand recognition, nor do they have years of experience behind them. Consequently, its vital that you ensure the franchise fee reflects the level of support the franchisor can offer you. If its too high, its a sign that the franchise is probably not for you.

8. They dont offer ongoing training and support

All successful franchises will offer new franchisees training and ongoing support. It's an essential component in the franchise model, as it's one of the principal ways in which franchisors ensure standards are being maintained across their entire network. If each franchise unit is operating differently, according to diverse rules, the franchise system begins to fall apart, as customers cannot expect the same standard of service from all units.

9. They rely on cheap tricks to reel you in

A franchise that's confident in its approach and happy to build on its financial track record to win over potential franchisees is unlikely to rely on cheap tricks and gimmicks to attract interest. It doesnt matter how many free goodies you leave your franchisor meeting with, nor what irrelevant extras youll receive upon signing the franchise agreement. A franchisor who attempts to buy your interest with anything but information concerning the performance and potential for growth in their franchise should be avoided.

10. If it sounds too good to be true

Finally, we come to the golden rule of identifying franchise opportunities that arent all they say they are. If it sounds too good to be true, it probably is. Franchising isnt a golden ticket to immediate success and, just like any other business, it will take time to get your new franchise performing as well as it should. Consequently, if a franchisor makes promises that are too attractive a proposition to pass up, its probably a good idea to take a step back and have a long, detailed look at their business model.

Theres numerous different signs and indicators that a franchise opportunity is too good to be true. These ten points are just some of the most common ways you can spot a franchise that you should probably pass on. However, in the end, it all comes down to the fact that an opportunity that sounds too good to be true probably is. Success doesnt come for free, so pick a franchise thats not promising the world, and begin working hard at building your new business.

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