Thinking About Investing in a Franchise? Here's What You Should Keep Top of Mind

Becky Martin, writer

Published at 01/04/2019, Updated on 04/05/2022 , Reading time: 5 min

Thinking About Investing in a Franchise? Here's What You Should Keep Top of Mind — Photo © good-bad-ugly.jpg

Investing in a franchise can be a life-changing event. To give you the best possible chance of success we’ve outlined what you should keep top of mind before you start your franchising journey.

The opportunity to be your own boss and in control of your career progression is an attractive proposition. However, you need to make sure that you undertake thorough research before signing a franchise agreement to ensure that the franchise itself is right for you. While there are lots of fantastic franchise opportunites out there, there are some bad ones too. Therefore, conducting due diligence is crucial. Here are some key signs to look out for when you’re investing in a franchise so you can differentiate the top notch from the terrible.

What you should look for

The security of buying a franchise business that is packaged and ready to go can be invaluable when it comes to turning over a profit. There are plenty of opportunities that are well worth the investment, and here are just some of the tell-tale signs that you’ve chosen a good one.

1. It has a well-developed business model

When you buy into a franchise concept, you avoid many of the challenges that new start-up businesses face because the franchisor has already learnt from their mistakes. With a solid business already established, the franchise will have everything structured and ready for you to learn. This includes branding, marketing and training. When this is the case, franchisees are able to hit the ground running and concentrate on profitability from the outset.

2. The franchisor prioritises franchisee success and encourages communication

All good franchisors understand that their success relies on the success of their franchisees. As a result, they should allow franchisees a certain amount of freedom to tailor their particular business to their territory. This will help ensure that franchisees feel empowered and fulfilled, increasing the likelihood of profitability in the long-run.

A great franchisor works to develop a culture of trust throughout the business. The relationship between franchisor and franchisee needs to be based on open and honest communication in order to succeed. Therefore, you need to be sure that the franchisor maintains consistent communication with franchisees and listens to their thoughts and concerns. Ask to speak to existing franchisees about their experiences with the franchise before you make your decision.

3. It has a strong brand

A franchisor that wants success for their franchisees will continually work hard to reinforce and protect the brand. Customers tend to look for names they recognise and continue to visit brands they trust even in times of economic uncertainty. By upholding the reputation of the brand, the franchise can continue to generate a positive turnover even in the toughest of times, whether it’s a van-based franchise, childcare franchise, or beauty salon franchise.

4. It has a quality training programme

When looking into the training offered by specific franchising opportunities, you should look for quality over quantity. Guidance shouldn’t stop after the initial training programme; good franchises continue to support franchisees throughout their time with the business. They also have regular networking events, where everyone involved in the franchise brand can mix and share experiences.

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Warning signs to be aware of

It’s fair to say that if you are familiar with the signs of a good franchise, you should be able to spot a bad franchise. Here are some red flags to look out for when it comes to investing in a franchise.

1.Its franchisees express criticism

When you’re conducting your due diligence, franchisors should encourage you to meet with existing franchisees. This demonstrates that, firstly, they have nothing to hide and, secondly, they want to support you in your decision-making process. If franchisors try to block you meeting franchisees or want to handpick the ones you talk to, the chances are they’re expecting you to hear negative reviews. You should also avoid franchises if the franchisor fails to follow through on his word or answer your questions in a timely manner.

2. It displays inaccurate information in disclosure documents

The Franchise Disclosure Document (FDD) contains important information about the opportunity and it should help you decide whether to invest in a franchise. It’s important that you ask a specialist franchise solicitor to review the document with you. They will be able to advise you if the franchisor makes a claim that conflicts with the documentation. This is a sure-fire sign that this might not be a good franchise investment.

3. It’s financially unstable

Good franchises recruit quality franchisees to grow and expand its already successful business. If it seems that the franchisor needs your investment to stay in business, you should find another franchise. Asking a solicitor or an experienced franchise financial advisor to review the FDD should help you determine the franchisor’s financial stability.

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4. It offers inadequate training and support

Comprehensive support is one of the key advantages of the franchise system. If it appears to be lacking, it might be worth investing in another opportunity; without the support of an experienced franchisor, the chances of success are extremely limited.

5. The franchisor puts pressure on you to make a decision

Choosing to invest in a franchise opportunity is a big decision. You should perform thorough research and due diligence and only sign on the dotted line when you’re totally comfortable with the entire concept. If at any point you feel that you’re being forced into deciding before you’re ready, it might be wise to walk away.

A franchise worth your investment will not come with pressure; if it does, the chances are that the opportunity is not as amazing as the franchisor may have led you to believe.

6. It is an established franchise but has few franchisees

If you come across a franchise that has been trading for many years but only has a couple of franchisees, beware. This could be a sign that franchisees are not willing to invest in or stay with the franchise. Sometimes franchisors can prevent previous franchisees from damaging their reputation by badmouthing them. This means that bad investments aren’t always obvious, so trust your instincts if something doesn’t feel right.

Investing in a franchise is a big decision

No matter how brilliant a franchise seems to be on the surface, you should collect as much information as you can and make an informed decision. Before you commit to a franchise, do your homework to make sure that the franchisor ticks all the boxes and is stable as well as successful. If you’re still on the lookout for the right investment opportunity for you, check out our UK franchise directory.