A franchise is a great way to go into business. You get to enjoy running your own business, but without the advertising overhead. There are reasons to not invest in a franchise though, so do your research before you put your money down. The best reasons to avoid investing in a franchise are:
- Litigation History
- Unit Failures
- No on the Numbers
- Unhappy Franchises
- Cultural Fit
One of the things a franchise must disclose is their litigation history. You will want to know how many lawsuits they’ve been involved in and the terms of them. If they’ve been sued a lot, it’s usually a flag to the bull that this is not a good place to put your money.
You will want to check how many of their franchise units have failed. They are required to disclose this as well. If there are a large number of failed franchises, that might be a good warning to stay away.
If the numbers the franchise provides you with either don’t make any sense or don’t add up, consult a CPA and if you still can’t make sense on the numbers, flee.
You’ll want to check out how happy the franchises are. You can do this by visiting them or calling them. You can get a feel for how those owners are doing and how they are enjoying the experience. If it’s incredibly negative, get out before you’re in.
Finally, it’s important to recognize whether you and the franchise are a good match. You will want to know if the people who frequent the franchise as well as potential employees are your type of people. If you can’t work with them, you need to know this before hand for your sake and for theirs.