A new prospective franchisee is often overwhelmed by the process of buying a franchise. Many are new to business generally, and certainly new to franchises. That makes them very vulnerable to bad and unscrupulous franchisors.
They will meet for the first time the shroud of mystery and secrecy behind which many franchisors hide that makes it very difficult to recognise the good from the bad. There is also asilence of criticism everywhere, which can mean just that the franchise has a very active legal team, demanding negative comment removed.
It will seem to newcomers as though the franchise has many deep secrets –
So critical it seems they will ONLY reveal them to franchisees including the mystery of how the franchise makes money.
The new franchisee can easily become persuaded that that is the only way that franchises have to be to “protect” their intellectual property. The entire process of discovery of information is often closely controlled by the franchise.
Be warned.
If a business relies on keeping a “secret” for its survival or growth, it is not a soundly based business at all, since no secret can remain secret for long. All too often this secrecy is simply there to hide what the franchise does not want you to know.
Some , even some better franchises, demand a deposit , just to look at the contract or to talk to franchisees. Which in the author’s opinion is reprehensible – and even if the franchise is genuine enough, it illustrates an attitude of the franchise to franchisees which cannot make for a good business like relationship.
So just on those grounds I would leave it alone..
But even with franchise which allow easy disclosure it is often hard to know exactly what questions to ask? We will address this subject in a lot more detail elsewhere and critical information which can be deduced from franchisor accounts, advertising and so on.
One problem is that franchisees even in good franchises – often regard their financial situation as a private thing So the absence of information forthcoming can be very misleading and have several very different interpretations.
So how can you get to find the truth?
First of all it is worth considering that in any established franchise, there will be profitable franchise resales. That way you can see the accounts of a running business, and analyze profit and so on. Take it as a serious warning, If there are many franchisees, but no profitable franchises for sale
However that is not at all a complete answer – the fact is the franchisee is selling – and when selling it is not always in the sellers interest to disclose the reason why he is selling. Maybe it USED to be a good franchise. Maybe the rules have changed. Maybe something is ABOUT to happen locally which will undermine the business and so on.Maybe he just knows when to sell.
For all that – There are questions you can ask when buying a franchise whose answers are both profound, VERY hard for the franchise to dodge, and very revealing.
And it is not franchisee income . The fact is success leaves traces.
Here is one trace, and a question you must ask.
If the franchise is good seen by insiders, and destined to get yet better, then long established franchisees WILL be buying up MORE territory.
The point is – these people know how good the business is, and want to buy even more.
That is one of the biggest recommendation that any franchise can have. There are others!
So ask your franchisor, you want to speak to franchisees who have been in the business at least three years who have recently bought up MORE territory.
If the franchise is good there will be some – speak to them.
If there are none then beware!!
Don’t buy a franchise until you have read the Franchise Balance which explains some of these questions!
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