Think buying a franchise is going to be the business opportunity of your dreams? Make sure you aren’t making one of these ten mistakes, or you might end up regretting your decision.

1. Wanting to Be Your Own Boss

You might think buying a franchise means you’ll gain independence, be your own boss, and control your destiny. However, the reality is that running a franchise is much more like joining the military. “You’re going to agree to follow orders [of the home office],” says Sean Kelly, publisher of UnhappyFranchisee.com. Obedience is what franchising is based on.

2. Thinking Buying a Franchise Means You Are Less Likely to Fail

Franchises fail at the same rate as other independent small businesses. “Some franchise chains have failure rates as high as 80% to 90%,” Kelly says. Thus, it’s crucial to get specific statistics about failure rates. While some franchisors have high failure rates, others have rates close to zero.

3.  Not Hiring a Franchise Attorney Before Signing A Contract

Kelly says he’s astounded how many people sign contracts without hiring an experienced attorney to explain the terms to them. It’s a huge financial commitment; it’s worth the extra time and money to make sure you have the best possible terms.

4.  Listening to a Free Franchise “Coach” or “Consultant”

Are you considering buying a franchise because of an online franchise “coach” or “consultant”? Don’t fall for their pitches. “They’re third-party commissioned salespeople and brokers and they have very little franchise experience except for delivering prospects to the franchisors that they have commission arrangements with,” says Kelly.

5. Expecting Government Oversight or Help

The government considers franchisees business investors, not consumers. Thus, consumer protection laws do not apply to them. Franchisor regulation is light and rarely enforced.  Often, your only recourse if you are taken advantage of is a costly lawsuit.  “It’s a potential nightmare,” says Kelly.

6. Not Consulting Other Franchise Owners

One of the most common mistakes people make when buying a franchise is never speaking with other franchise owners, says Inc. reporter Adam Heitzman. No one else is better qualified to help you with online marketing, market research and customer trend analysis to make the best decisions possible.

7. Not Having An Exit Strategy

You might not want to plan for what happens if you fail, but if you don’t, you could lose even more money. Plan for what happens if you break a lease early or if you close your business before your contract ends. Otherwise, you might still owe rent, franchise fees and loan repayments.

8. Assuming Franchisers Are On Your Side

Unless they explicitly protect your rights in writing, franchisers will only consider their business interests, not yours. Seek out franchisers that provide access to franchisee associations that can help negotiate your contract. Robert Purvin, chief executive of the American Association of Franchisees and Dealers, says franchises like Meineke, Dunkin’ Donuts, Supercuts or Burger King offer such assistance.

9. Underestimating the Ongoing Investment

Calculate the investment you need to start operating your franchise — and then double it, says Dan Duffy, CEO and chairman of United Real Estate. Not only will running a franchise require a large ongoing financial investment, but a large time investment as well. You will need to saturate yourself in the experience of running all aspects of the franchise so you understand exactly what is expected of you.

10. Not Understanding the Market

Hip and trendy franchises might look attractive and feel destined for success, but they might not work for your market. Maybe there are already popular and trusted businesses satisfying the same customer base. Maybe there is no consumer need for the franchise. Maybe the location is going through a rapid change in population. Take the time to do the basic market research yourself, and you can rest assured your franchise has a chance of success.

Still feel confident buying a franchise is the right decision for you? Contact an UpCounsel Commercial Contracts & Business Agreements attorney to help guide you to success.

Sources

Photo: “6 Big Red Flags to Avoid When Buying a Franchise” by April Mcguire, used under Quickbook Intuit

About the author

Alex Liu

Alex Liu

Alex began his career as a scientific legal consultant and then as a journalist researching and reporting on health policy and health sciences. At UpCounsel, he enjoys researching and analyzing data to help businesses make informed decisions. In his free time, Alex is working on a documentary.

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