According to Dollinger (2008), a franchise is defined as “a marketing system by which the owner of a service, trademarked product, or business format grants rights to an individual for the local distribution and/or sale of the service or product. A franchise is a way for new entrepreneurs to start a business that already has name recognition. According to an Entrepreneur magazine article in 2014, the minimum investment required can range from $3000 to over $1 million, depending upon the franchise. While some of the more popular franchises have a reputation for success, others are not as appealing (Radenhausen, 2014). This article examines the warning signs to look for when deciding upon the type of franchise to open.
It is imperative that one research a potential franchise opportunity thoroughly. This should involve discussing the franchise with current franchisees, reviewing disclosure and financial information, and talking with the ...view middle of the document...
If the franchisor promises something that is not in the document, that should be a red flag and signal to walk away.
* Excessive litigation. While doing the research on the franchise, it is imperative to review any past and present litigation involving the franchise. This could prevent future claims and losses against the franchisee.
* Franchisor financial instability. The franchisor should not need the franchisee to keep the business afloat. By purchasing a franchise, the franchisee should expect growth and success--not difficulties keeping the doors open.
* Franchisor pressure. It is necessary to take the time to review all aspects of the franchise to avoid a possible mistake. When potential franchisees experience pressure from the franchisor, this may be a sign that the franchise is not a good fit or is in trouble financially.
* Lack of training/support. If the franchisor does not offer ongoing training and support, this is an indicator that the franchisor does not care about the success of its franchisees.
The positive aspect of this article is the recognized benefit of doing research. A potential franchisee should review all everything involved with the purchase of the franchise in an effort to avoid a negative franchise experience. A franchisee should not expect the opening of a franchise to be instantaneous, unless the franchisee wants the venture to fail.
It takes dedication, patience, and hard work to succeed at any business. By purchasing a franchise, a potential franchisee should not expect anything different. As a consultant, one should inform the potential franchisee of any issues with the franchise that is being reviewed for the possibility of purchase. The franchisee should do their due diligence to avoid a poor experience. The franchisee should not expect immediate wealth from the purchase of the franchise.
Herold, T, Echeverria, N, Peyton, R, Santana, M, & Wong, S. (2014). Entrepreneur 2014 Franchise 500. Entrepreneur. Retrieved 10/3/2014, from http://www.entrepreneur.com/franchises/franchise500/about.html
Radenhausen, J. (2014). Signs of a Bad Franchise. Retrieved October 4 2014, from Houston Chronicle Web Site: http://smallbusiness.chron.com/signs-bad-franchise-48712.html