4 Things to Avoid When Becoming a Franchise

Opening a franchise could give you a chance to use your business skills and find a new source of revenue. 

A few examples of successful franchises would be Mcdonalds, Homecare Preferred Franchise, Next, etc. These businesses have all invested in strategic marketing, offer great products and services, and over time have become successful and established franchises that people trust.

Opening a franchise is not usually as easy as getting and accepting an offer. Make sure you follow these four pieces of advice so you can avoid common mistakes when becoming a franchisee.

Don’t Make Hasty Decisions When Choosing an Opportunity

A lot of people think that opening a franchise eliminates, or at least reduces, the risk associated with starting a new business. This is often reinforced by companies that only tell potential franchisees about success stories even though there are plenty of failures, too.

The truth is that starting any business is risky. In fact, about 19.3 percent of Small Business Association (SBA) loans given to franchisees between 2006 and 2010 were failures.

Granted, some brands have higher success rates than others. Franchises with the highest rates of failure include:

  • Planet Beach — 41.1 percent failure
  • Huntington Learning Centers — 31.1 percent failure
  • Quiznos — 29.6 percent failure
  • Cold Stone Creamery — 29.4 percent failure

If a company tries to make it sound like a franchising opportunity is a sure route to success, then you’d better do your research instead of making a hasty decision.

Avoid Choosing a Low-Quality Payment System

Some companies give their franchisees tools that can help them find success. Others just let new investors figure things out on their own. Either way, you're at risk of choosing a low-quality payment system that is more trouble than it's worth.

A lot of franchisees run into problems using payment systems that don't adequately match their needs, usually because the systems are too limited. For instance, the system might not offer enough analytical tools for the owner to track expenses and revenues well. Others may accept credit card payments, but they don't offer an easy way to accept online payments.

Any limitations will stifle a business's ability to attract customers and increase sales.

Sage specializes in simplifying payment processing so you can get paid without jumping through a lot of unnecessary hoops. This company offers a single product that can help you:

  • Accept all kinds of customer payments, including credit card and online purchases
  • Choose payment terminals and mobile payment hardware
  • Manage finances so you know exactly how much money you have flowing in and out of your franchise

Don’t Make the Decision on Your Own

When you sign a franchise contract, you start a complex relationship between your business and the parent company. In nearly all cases, the parent company gets to control that relationship.

That means opening a franchise could force you to follow rules about:

  • How much you can charge for products and services
  • What equipment you buy for your franchise
  • Whether you get to create your own marketing
  • How you handle customer complaints
  • Whom you hire, fire, and promote

The franchise contract is full of this information. Unfortunately, a lot of it is in legal jargon that the average person can't understand. A lot of would-be entrepreneurs open franchises because they want to be their own bosses and make their own decisions. They quickly discover that they don't have as much control as they would like.

That's why you should hire a lawyer who has experience in franchise law and contracts. Hiring an expert will cost some money, but it is a crucial step toward deciding whether a franchise opportunity is right for you. If you don't seek counsel from a professional, then you could find yourself trapped in a contract you don't fully understand.

Don’t Assume the Franchisor Cares About Your Success

To some extent, it makes sense for the franchisor to give franchisees better chances for success since it could improve their brand. In reality, there are some franchisors that don't care about the franchisee's success as long as they can keep collecting fees.

This makes it essential for you to research all franchise opportunities. You not only should determine how successful the company is, but whether it has a good reputation among its franchisees. Remember that the franchisor will have nearly all the power once you sign the contract.

Some franchise opportunities are obviously better than others. When you know what to look for and what to avoid, you have a better chance of choosing a good investment opportunity.

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11 Jan 2018