Franchise Opportunities: 8 Red Flags to Avoid

It is a daunting task to find low-risk franchise opportunities with higher success rates. Since a franchise investment is an important decision, be sure to do it wisely.

Here are a few red flags to look out for, while looking for a franchise.

Red Flag 1: Litigation History (If any)

Litigation, if any, will be mentioned in the Franchise Disclosure Document (FDD), but it is critical to do research on your own as well.

If you feel there is any litigation involved that can’t be resolved, then it is a good idea to walk away.

Red Flag 2: No UFOC

Every franchisor should give their future franchisee owner the Uniform Franchise Offering Circular (UFOC) before receiving payment or signing the franchise agreement.

If not, you may need to enquire about it and stop the purchasing process till the UFOC is delivered.

Red Flag 3: Inconsistent Franchise Business Model

The franchise business model being consistent is an important factor which shapes the stability and longevity of the franchise.

If there are inconsistencies, then it means the model is not perfect yet.

Red Flag 4: Hustled Pre-sale Process

If a franchisor is hastening the pre-sales process and willing to sell the franchise to anyone, then it may not be the right choice.

Any franchisor who is in for the long haul will choose their franchisees wisely, and not in haste.

Red Flag 5: Incomplete or Unclear Franchise Disclosure Document

Detailed information about the franchise system and operations should be present in the FDD. If information is missing or incomplete, then take a second look.

Red Flag 6: Less than ideal Franchisor-Franchisee Relationship

Before purchasing a franchise, it is important to meet a few franchisee owners to understand the relationship they have with the franchisor.

These owners can provide you with crucial insights about what to expect after your sign.

Red Flag 7: Fewer Franchisees after Many Years of Operation

Even after many years of franchise operations, if the business has too few franchisees, then look around before going for it.

Of course there is a chance that the franchise is super-successful and the franchisor is being very selective. Again the point is, look before you sign.

Red Flag 8: Failing to Answer Basic Questions

If the franchisor doesn’t know the answers to basic questions about their own franchise system, then it is a definite red flag. Questions about supplier relationships, operating standards, etc. require clear answers.

Be careful if the franchisor tries to avoid any of these questions.