Operating a business is a dream that many Minnesota residents share. Unfortunately, most lack enough financial resources to start from scratch and build a company and brand from the ground up.
Investing in a franchise may help you achieve your business goals with less financial commitment, but not all opportunities are as advantageous as they seem. Evaluate all franchise possibilities carefully before you put your money on the line.
A franchise that supplies you with a loyal consumer base, like McDonald’s, is often a safe investment. However, there are still many pitfalls that could trip you up, even with a well-established brand.
Look for red flags like these
Do not rely on popularity or brand recognition alone when choosing a franchise. You can eliminate as much risk as possible by ruling out franchise opportunities with the following:
- High fees: Franchise fees vary depending on several factors, but if they seem excessive for that industry, proceed cautiously or look elsewhere.
- Lack of experience: When possible, it is best to work with a franchisor who has experience and a proven track record of success.
- High turnover: Consider it a warning sign if the franchise has a high rate of business closures or exiting franchisees.
- Disputes and lawsuits: It could be a red flag if the franchisor has a history of involvement in numerous franchise-related conflicts or litigation.
Potential franchisees should also carefully review the franchise agreement before signing. Some unfavorable terms to be wary of are:
- Excessive franchisor control provisions
- Unreasonable restrictions on business operations
- Franchisor’s right to make unilateral agreement changes
You can avoid potentially costly missteps by engaging a franchise law professional when choosing a business to invest in and grow. Together, you can vet your candidates and find the one that promises the most rewards while posing the fewest risks.