Top 15 Red Flags when buying a franchise

Well written article Shweta as always. The point of caution not to sign a personal guarantee cannot be more stressed. Personal knowledge: this has caused dozens of people to lose their sleep, livelihoods, homes, and even marriages. All businesses carry risks, and even most banks’ do pre-loan due diligence that allow that latitude upto a certain amount on unsecured lending to small business owners. If franchisors are not confident of their franchise & need to resort to ultimately grabbing their franchisees’ homes if the franchisee falters..the franchise is probably worthless and mis-sold or the due diligence done by the franchisor before awarding was probably a sham to simply attract gullible franchisee fees. Pam Featherstone Indika Wanigaratne

I too have experienced the financial and emotional disaster of getting caught up in a brutal franchise. However, having learned the hard way, I can attest that the #BusinessCoachAcademy is a caring organisation with much to offer both the aspiring business coach and the experienced coach. I have worked with them now for over a year and been thoroughly impressed by the depth and quality of material and the almost unbelievable support they give to their members. These people really care about the success of their members.

Excellent article Shweta Jhajharia I would like to add my thoughts below. - Personal Guarantee: under no circumstances should you ever sign a franchise agreement with a personal guarantee. This puts you in a extremely vulnerable position where you could lose absolutely everything…. BE WARNED ! - Independent Solicitor: It is absolutely critical to get your own fully independent solicitor. Do not under any circumstances use a solicitor that is suggested by the franchisee. If you are incentivised in anyway to use a solicitor that is recommended or suggested by the franchisor then you should run a mile, this is a massive red flag! - Territory Size: Think about the services you are offering and the territory size. Only a certain percentage of your target market will ever want to buy the franchise services. Bear in mind all the other competition that is out there. Also be aware that clients would have a natural lifetime, and once they have used your services and stopped they might be unlikely to use your services again. So once you have serviced the proportion of your target market then you are likely to have exhausted that target market and your business will no longer be able to grow your business, in fact it will decline.

?? This is a brilliant checklist Shweta Jhajharia and I hope it gets seen by many potential franchisees. It is sadly too late for many trapped in a franchise they cannot get out of or who have lost everything because of the high fees, suffocating restrictions and poor support. I'll share it to help as many people as possible who are considering spending their hard earned money on a franchise to ensure they ask themselves better questions to make a fully informed decision. Your checklist highlights the horrors of dealing with a restrictive, punishing franchise agreement, often with dire consequences for those who are unaware of the pitfalls. I'm proud to say that I co-founded the #BusinessCoachAcademy with my son, Zander Woodford-Smith to provide a turnkey coaching business in a caring, professional environment for business coaches to flourish and get the support that they need and for new coaches to get the right training and guidance. We provide all the benefits of a done for you business without the restrictions of a franchise. ?? Thank you for bringing this to the attention of your Linked In community.

This is an excellent initial checklist ,of course the nature of business today shows us that 50% of given businesses were not in existence before 2 years ago(Source: McKinsey's) and what the Americans call the "Champ to chump" cycle is very short ). Thus it is possible to buy a franchise or distributorship in say rural Hertfordshire where I live and then discover that the unique buying proposition(UBP) embodied within the franchise can be emulated more quickly than the franchisor suggests and that a company from overseas has set up across the street. As a student of military history I apply the logic of Sun Tzu(The Art of War) ,Myamoto Musashi (Book of Five Rings)and Boyd(A Discourse on Winning and Losing) to marketing /sales/people. If the franchisee is to make an effective purchase he/she must come to a sober assessment of the longevity of the UBP ,the "window of opportunity " for making money with the franchise . Anything can be copied, emulated and "fast followed" as we have seen with in the past so the franchisee must think ahead ,risk optimise / futureproof their approach and business model so that the "proven business model" metamorphoses at speed to deliver results in a fast changing business landscape.