Prospective Franchise Purchasers Beware

Buying a franchise can add up to a lifelong commitment, or an investment in a lifetime of savings, and prospective buyers are warned to be very careful before …

Buying a franchise can add up to a lifelong commitment, or an investment in a lifetime of savings, and prospective buyers are warned to be very careful before making the leap. To help do that, experts have compiled a list of 10 questions every future franchisee should ask before buying, which include surveying other franchisees in the business, finding out the turnover and failure rates, knowing how much it is possible to earn, as well as several other key factors. For more on this continue reading the following article from Blue MauMau.

Forbes contributor Carol Tice blogs about ten tough questions that every investor of a franchise establishment should ask of the franchisor. 

  1. What are franchisees saying about the franchisor? When many franchisees are dissatisfied with how their system is run, they now take to the Internet to share ideas and vent their frustrations. Look for franchisee associations, check the popular franchise site Blue Mau Mau and Unhappy Franchisee for grumblings of discontent, or just Google “[franchise name] sucks” to see if there’s negative chatter from the unit owners.
  2. What’s the turnover rate? Scrutinize the Franchise Disclosure Document (FDD) of the franchise system you’re interested in, and see how many units changed hands in the past year. If there are a lot of sales, that can be a sign of trouble, especially if the franchisor is having to buy up the units to keep them from closing down.
  3. What’s the failure rate? Franchisors will tend to spin closures as the fault of lazy franchisees who didn’t follow their system. But if you see a high percentage of closures, that’s a big red flag. [via Forbes]

There are seven more questions.

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My question #1 would be: "How much can I make with this franchise?" I’m greedy that way. 

If a franchisor doesn’t want to tell the profits and losses of their average franchise, I would want to know why. If the franchisor said they cannot tell because Big Government doesn’t allow it, I’d walk away because it’s not true.

That untruth means that the franchisor either wants to hide such critical information. Or, in a best case scenario, it means that the franchisor is clueless on franchise law and operations. The Federal Trade Commission has no problem with franchisors disclosing how much their franchises pull in. They just don’t want salespersons make pie-in-the-sky earnings promises to an investor when they aren’t willing to provide evidence in a franchise disclosure document. First, I don’t like to go in business with liars. And in the best case scenario that they simply don’t know, in business-format franchising I don’t like someone who is blind to what activity impacts bottom-line store earnings to dictate how to operate my business. Do you?

This article was republished with permission from Blue MauMau.

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