Hi, this is Iyyappan Rajendran of Strategizer again. First, Happy Diwali, folks! It’s been a busy week for me; I kind of received hundreds of franchise opportunity requests, this week —some real quality ones and some didn’t look convincing enough, no, not for me, at least. This is mainly because there isn’t a single indicator to look for when rummaging about the thousands of franchise opportunities available these days. And yet, there is no reason why you should settle for less than the best opportunity within your investment range. I spend considerable time weighing all of the indicators in the assessment phase. This is because there are a lot of franchises that just don’t do their homework and make a bad investment. Here is my take on some of the things that franchisees should avoid while investing in a franchise business:
- A high decibel sales pitch:
Developing a franchise is building it brick by brick; the franchise under consideration should have an enviable reputation and a proven track record of success. Avoid misleading high decibel sales pitch, and spacious “one-day millionaire” franchise seminars. You should feel like you are in for a job interview. Don’t be lured by the franchisor’s desperations to push the deal or discounts thrown at you to dress the deal up.
- Missing or Incomplete paperwork:
Look for proper paperwork; there are certain documents required to be furnished such as a Franchise Disclosure Document (FDD). If you find any key document missing, or unprofessionally created, intentionally vague in terms of wording, the franchisor is likely to hide something from you or hoping to find buyers who’d tell them ‘all is well’.
- Salespeople and paperwork isn’t a great match:
I’ve had many cases where franchisees weren’t satisfied with the salesperson’s approach. The salesperson may present you a different version of the story, though he/she may seem professional with the documentation just perfect. This may raise a red flag as the transaction can’t be that secure or worthy enough in that case.
- A checkered past:
Check for the reputation of the company, both online as well as offline. Are there any legal problems in the past? Has the franchisor gone through financial crunch or some sort of PR nightmare? Occasional negative reviews and the trust factor of a franchisor notwithstanding, if you’re sensing a troubling trend, watch out.
- The age-franchisee inconsistency:
Say if a franchise has been in business for 50 years, but has only about 35 franchises to boast of, it may just not offer the kind of support you may expect. While at the same time don’t consider the vanity metrics of just a year old franchisor that pops its collar with over 1000 successful franchises already – it may be a downright lie or is offering little support, if any, to the business owners. The point is an older franchise business is likely to succeed in the long run, and if it doesn’t, there is no reason why you should invest in it.
- High franchisee turnover:
This is nothing but the number of franchises that have left a particular franchise business in the last three years. Generally, the franchise turnover rate will be higher in the case of lower franchise fees. So, a good metric to check for is the turnover rate with respect to the total number of franchisees, particularly if start-up costs are comparatively high—this is an indication that the opportunity may not be workable or capable of duplication anymore.
- Inefficient training program:
This, to me, is the key to a good franchise system. Any franchise business that has an inadequate training program or something which is too hurried and short, or too longish or tardy is gonna affect the way the franchise business is operated in the long run. Talk to those who have already undergone a particular franchise’s training program. Don’t push yourself too much if you aren’t still comfortable.
- Tinkering and experimenting the business model:
A franchisee will be comfortable running its operation with a time-tested and tried-and-true method that has been proved to be successful over a period of time. Too many tampering or toying with the business model means that the franchisees have to keep up with the increasing number of ‘strategic pivots’ made by the parent company every year. I wonder if there is any benefit to it.
You may bring in additional points to the blog to help our visitors. If you aren’t still unsure whether to take up a franchise opportunity, simply mail me at email@example.com, so that I may help you to avoid bad franchise sellers.