The 8 Signs That a Franchise Opportunity Is Too Good To Be True

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

The franchising industry has never been stronger. There are currently a record number of franchises (48,600) that collectively contribute more than £17 billion and 710,000 jobs to the UK economy (The British Franchise Association/NatWest Franchise Survey 2018). Since 2015, this turnover figure has increased by 14 percent and the number of franchised units has grown by 10 percent. Based on this, and the fact that six in 10 franchised units turn over more than £250,000, why not consider starting a franchise?

While there is scope to own a lucrative business with franchising, not all franchise opportunities are created equal. Although 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. So, here are some tips to help you avoid franchise scams at all costs.

8 signs that a franchise opportunity is too good to be true

1. The franchise is 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 aim towards 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

Although 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. The franchisor puts 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. In the majority of cases, 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. That is why it's essential that you understand the difference between a sales pitch and unwelcome pressure to buy.

4. The franchisor guarantees immediate success and huge profits

One example of a franchise scam that hit the headlines a few years back was when Juan became a victim in northern New Jersey. Even though he was working over 90 hours a week, had perfect feedback from his customers and always had business coming in, his franchise was penniless. The franchisor targeted immigrants and promised them an easier and more lucrative life through owning their own janitorial franchise.

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.

Though it should be said that if you work hard and buy into a legitimate franchise, there is scope to become incredibly successful and earn huge profits. These success stories prove exactly that.

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. The 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, advanced training programmes and access to more impressive technology.

Newer franchises aren't able to provide the same support or brand recognition, nor do they have years of experience behind them. Consequently, its vital that you ensure the franchise fee reflects what the franchisor can offer you. If its too high, its a sign that the franchise is probably not for you.

7. The franchisor doesnt 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.

8. Its franchising too early

Although a business owner may believe their company is ideally suited to the franchising model, they should resist the temptation to franchise too early. First, they need to 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. Franchisees should proceed with caution when it comes to these types of franchises.

What to do if youve been caught in a franchise scam

If youre getting to this article too late and have already been caught up in a franchise scam, you should visit the British Franchise Association (BFA) website and seek legal advice from a specialist franchise lawyer. You can read seven more reasons why you should consider hiring a franchise lawyer here.

Where else can you find helpful advice?

By paying close attention to these signs and asking some important questions before taking the plunge, you can ensure that you're never undertaking an opportunity that really is too good to be true. The BFA website is packed full of helpful advice and is a great place to start before considering a franchise opportunity. When starting your journey to franchise ownership be sure to remember these eight signs that a franchise opportunity is too good to be true. You can also follow these six tips for starting a franchise in the UK.

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