Many small business owners do not want to start from scratch with a unique idea. The good news is that you can still be your own boss without building a business from the ground up, as franchises can be a great opportunity for entrepreneurs to jump right in. With a franchise, you will already have a support system, marketing strategy, and brand for your business. However, franchises do not come without risks and many fail for various reasons. Therefore, every prospective franchisee should watch out for red flags in order to protect themselves and their investment. The following are five things to watch out for if you are considering buying a franchise.
1. Is the type of business right for you?
Not every type of business is the right fit for every type of person. Just because other franchisees are succeeding does not mean that you will automatically succeed in that franchise, as well. Before you start looking for a business to buy, take a personal inventory and evaluate your values, skills, and goals. For example, are you willing to work seven days a week or do you require days off to spend with your family? Will you be willing to abide by franchise rules or are you too strong-willed for that? Do you have the business savvy to succeed in that particular industry? Honest self-evaluation can help you choose the correct business for you.
2. Is the market overly saturated?
You may see a successful branch of a franchise on every corner and assume that yours must succeed, too. Sometimes, if a particular area is too saturated, competition is too high and your profits will be limited. Some of the most desirable franchises limit the amount of operators in each geographical area for this reason.
3. Is the price is right?
Overextending to buy a franchise is the primary reason franchises fail. Spending more than you can afford up front means you have less money for everyday operations. Many franchises take some time to start up, so if you overspend on the initial purchase, you may not be able to support the business, yourself, or your family if customers do not immediately begin pouring in.
4. How are other franchisees doing?
Watch out for the franchisor who only presents you with success stories. You will want to seek out other franchisees on your own to hear about both successes and potential failures. If a franchisee is struggling, talk to them about the reasons why. Would you fall into that same trap? Are your skills and general business approach more similar to the successful or the struggling franchisees?
5. What will happen when it comes time to sell the franchise?
It may seem odd to consider selling a business before you even buy one, however you should protect yourself future self, as well. Look into the value of a re-sold franchise, and whether franchisees who sold ultimately made a decent profit compared to their initial investment. Examine what you will have to do and invest to keep the resale value of your franchise up, so you will not lose when it comes time to move on to a new business venture.