4 reasons to be skeptical of franchising

  • Tim Neary | November 29, 2019
4 reasons to be skeptical of franchising

Franchising is often thought of as a good way to get into business for yourself, but it can come with a list of potential problems that can depress profits, cause dissatisfaction, and drive owners out of business, according to entrepreneurial business platform Inc. Here are 4 things to look out for before signing up.  

1. Success oversell 

The biggest reason to embrace a franchise is that you supposedly have a higher chance of success, says Inc, except it adds, that you don't. 

“A study from 2007 found that franchise restaurants fail at about the same rate as independent restaurants within the first three years of operation. 

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“Another study of small business administration default rates showed that franchises defaulted at slightly higher numbers than nonfranchise businesses, although that appears to be a best-case scenario: The data may have underreported the franchise status, so the difference could be more marked.”

2. Domino effect  

When something goes wrong at one franchise location, it can hurt everyone else who owns one.

“Being associated with a visible name isn't a guarantee of warm and fuzzy feelings. On the other hand, a small or new franchiser's name might mean nothing to most people, leaving you to do the heavy marketing work.”

3. Expense overload 

There are franchisers that insist the franchisees buy all their goods, equipment, or stock from them, and this is not always a good idea.

Inc adds: “Although some chains with imposed central buying do impose standards on the chain, and can actually provide lower prices than local purchasing offers, there is always the danger that the temptation to create another revenue source from franchise owners becomes too great.”

4. Care factor 

Some franchisers don't care about your success, and this is often the biggest issue, says Inc. 

“Talk to enough former franchise owners and you'll run across those whose experiences of the franchisor were less than positive. 

“No one wants you to succeed as much as you do, and there is no such thing as guaranteed success. Only by being skeptical can you see if your business plans actually make sense to someone who is looking to preset you with an invoice.”

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