Buying a franchise can be a good way to open a business and bring in compensation. However, buying into the wrong franchise can come back to hurt you later by resulting in poor returns or even negative returns.
There are times when it’s not appropriate to buy a franchise. If you see any of these three warning signs, then reconsider if buying this franchise is the right option for you.
- Missing paperwork or details
One thing to look at is how missing paperwork could influence your purchase. If you can’t get information from the owner, such as the Franchise Disclosure Document, or FDD, then you won’t have all the information you need to make a decision about the investment. If vital documents are missing, that’s a sign to walk away.
- High turnover rates
On the FDD, you will be able to see how many franchisees have left the system within the last 72 months (three years). If you note that there is a high turnover rate, this leaves plenty of questions open. For example, a high turnover rate could mean that it’s more expensive to get started or difficult to earn a return.
- Noticing that there isn’t a solid business model
Another problem that might occur and make you walk away from the opportunity is if you see that there isn’t a solid business model for the business. It’s a good idea to buy into a franchise with a proven model for success. Failing to do so could mean that there is no single method for keeping the franchise afloat, which will cause problems down the line for you and those working there.
Buying a franchise can be a good way to invest your money and may bring you great returns. However, purchasing the wrong franchise may cost you more than you expect and result in losses. Before you buy any franchise, make sure you have all the necessary disclosure documents and are sure about what you’re buying into. Doing this will help you protect your investment and put you in a better position for higher earnings.