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Franchise business is advantageous as you will be equipped with already established business processes. However, starting any business has certain risks. It might be challenging to recognise and select the franchise possibilities with low risk and the highest likelihood of success among the numerous that are offered.
There is no thumb rule that every franchise business will be successful. This results in research process to determine the how successful and potential the franchise business opportunity is. And one of the ways to conduct the research is to identify the red flags, if any.
Identifying the red flag will help you to understand the warning signs that there is some loopholes that needs to be dealt with.
You're likely to have a lot of inquiries when you assess a franchise. This necessitates frequent communication with the franchisor. It is definitely a red flag if they do not promptly reply your calls or emails or if they are unable to provide you with straightforward answers.
Imagine being bound for years by a franchise agreement. In the beginning of any relationship, both partners usually try to make a good impression on the other. When you need the franchisor later on, they probably won't be much help if they aren't making much of an effort now.
If the franchise you're thinking about isn't performing well overall, this could be a warning sign. Make sure to research any contracts before you sign them like
1) What does the general public think of the franchise's products?
2) Has the franchise's name received any unfavourable press lately?
3) Existing franchises that are for sale or that have closed their doors: how many?
4) When starting a new franchise, having a strong brand behind you is crucial. You have to work even harder to achieve without it.
You'll probably speak with at least a few current franchise owners while conducting research on a certain business you want to buy. You can ask them about the procedure for purchasing the franchise and the ongoing relationship with the franchisor at this time. You might wish to consider a new franchise if they are mostly negative or have nothing positive to say. A fantastic way to learn first-hand about the scenario you might be in over the following months and years is to speak with the existing owners.
If you're only thinking about one franchise, you'll need to conduct some research (which you should be doing anyhow). There are several costs associated with any franchisor/franchisee agreement. The franchisee (you) must pay an initial fee and frequent royalties to the franchisor (parent firm).
Fees need to be carefully examined. Make sure you are fully aware of the costs involved. In rare circumstances, a franchisor may demand greater fees in exchange for more training materials.
The franchisor wants to sell you this opportunity, so keep that in mind at all times. That is the fundamentals of business acquisition. They are simply making a pitch to sell something. Most likely, a franchisor will spotlight some of its best franchisees. They might point you to them, enticing you to get in touch with them right away.
Of course, they won't draw attention to their franchisees who perform poorly or are dissatisfied. To obtain a full picture, you must make contact with the franchisees included in the agreement exhibit, which are required by law to be disclosed, on your own.
Before you invest, ask the franchisor what they believe is causing their franchisees' success (or failures) so that you can measure your expectations.
Online frauds have increased massively. Many people got duped while online fraudsters tried selling franchise businesses. A person from Rajkot was enthusiastic in taking Dominos franchise and lost around Rs. 33 lakhs. The victim received a call from a person introducing himself as a public relation officer.The caller took all his personal details very confidently and the victim also checked the address in google to be authentic. So he trusted the PRO.The PRO gave an account of a South Indian bank and was asked to deposit a big amount of Rs.13.50 Lakhs.One by one payments he cleared, but there was no visit from the company’s side. When he tried to call, all the numbers were switched off .He contacted the official of Dominos to get to know that he was cheated.
Such a fact is alarming and people should be very cautious while dealing with business folks and investing.
Due diligence is required in order to find and choose the finest franchise opportunity that most closely matches the financial and personal profile of the franchise candidate. However, before a thorough review is conducted, there are several warning signs that can be found and looked into.