Opening a franchise location can offer new opportunities to bring in customers and build a strong business on a preexisting brand. Sometimes, however, a franchise opportunity really is too good to be true. When should prospective franchisees walk away from a franchise opportunity?
1. The franchisor has been involved in significant legal conflict.
No business is without conflict. However, it is cause for concern if a franchise has been involved a large number of disputes that end in litigation. One rule of thumb offered in Forbes suggests that you should more closely scrutinize a business that has been involved in litigation with more than 5% of its franchisees.
2. Many franchise locations have closed in the past year.
While you may be confident in your ability to make a franchise work in your area, you still rely on the franchisor itself to bring in business. Many franchise locations closing in the past year can be a sign that the business’s finances are not in order or that it was not prepared for the challenges of the current market.
3. The franchisor’s fees are not fair.
Opening a franchise can involve a franchise fee of thousands of dollars. In addition to this initial cost, additional fees can include a wide variety of charges for advertising, equipment, the use of company software and support for a variety of business operations. You should carefully review the wide variety of fees that a franchisor may charge and evaluate whether those fees are fair.
While you may be able to spot many warning signs on your own, it can still be helpful to have experienced legal or financial guidance when evaluating a franchise opportunity. Working with an experienced attorney can help you determine whether the franchise offers a great opportunity or whether you should walk away.