Many think franchises are safe investments that don’t carry a huge risk. While it’s true that franchisees can take advantage of the franchisor’s knowledge, there are still some risks of this type of business setup.
There are several risks that you need to consider. Some are industry-specific, so it’s best to find someone to help you with your specific industry. The following two challenges typically present for franchisees:
1. Name or brand association
Brand and name association are part of the perks of a franchise, but it could impact your business if there was a previous franchisee in the area that didn’t do well.
One important question to ask is if there was ever one in your planned market area. If there was, try to find out why it closed. If the local market has a bad association with that brand, you may want to reconsider.
2. Absolute franchisor decisions
You’re at the mercy of the franchisor for many things. They can make decisions that affect you without you having any say in them. One example of this occurred in Michigan recently. Papa John’s forced a franchisee to close the business because they weren’t able to remain open for the hours required by the franchisor. The franchisee didn’t have any choice but to close the company.
One of the most important things to remember is that you must protect yourself when you’re considering becoming a franchisee. Having someone on your side who can review the contracts and help you understand exactly what the franchisor will do and what you’re expected to do is beneficial.
NOTICE: This blog is intended solely for informational purposes and should not be construed as providing legal advice. Please feel free to contact us with any questions you may have regarding this blog post.