Top Warning Signs Before Buying a Franchise
Sean T. Ngo, MD Vietnam Franchises
While franchising is extremely popular worldwide, from emerging to developed countries, below are some “red flags” or indications that potential franchisees must be aware of:
- Selling the Franchise – If you’re being pressured into making a decision – don’t sign. Look for franchises and franchisors that provide all the necessary info that is needed to make a sound decision.
- Get a copy of the FDD – Ask for a copy of the Financial Disclosure Document (FDD). If the franchise salesperson is making promises over what is in writing in the FDD, make sure the franchise agreement includes these promises.
- Interview Existing and Former Franchisees – No one will provide more honest feedback about the franchise and the franchisor than existing and former franchisees. For former franchisees, the obvious questions relate to why they are no longer franchisees. If requested and the franchisor does not willingly assist in helping you to get in touch with existing or former franchisees, that should be a red alert sign.
- History of Litigation – Litigation is expected but you should be aware of the reasons for litigation. Some reasons are valid, others are not. A company with large amounts of litigation should be a concern for any potential franchisee.
- Weak Training and Support Provided by the Franchisor – If you’re not confident that you’ll learn what you need to know to operate your business, ask further questions. Do current franchisees operate effectively? Do they get the help when they need it from the franchisor? Does the franchisor have an international team dedicated to support international franchisees?
- Franchisor’s financial strength – Have the FDD reviewed by a professional. A franchisor cannot help you if they are not around.
If you are not able to evaluate these warning signs, get professional assistance as a few dollars invested today will help to ensure that you have chosen the right franchise.[ Go back ]