How to Avoid Unethical Franchisors
If there is anything that gets my goat – it’s unethical franchisors. It is one thing to be underhanded in your own business, but it is quite another to be underhanded in creating a business for someone else.
Unfortunately in the world of franchising (especially in countries that are unregulated), there will always be the franchisor bad apples that will stain the industry.
My heart goes out to franchisees who have bought into franchise models where they have been promised the world and been delivered, well...a few dust particles.
Here are my three top tips on how to reduce the risk of falling foul of unethical franchisors:
1. Do Your Homework
Do some Companies House checks (in the UK) or similar kinds of public record checks on the set-up of the business (you may be able to do some director searches too – and will get an idea if the business failed at some point under another name); Google the business and its directors on forums etc; look at the franchise offering in detail (so you know exactly what it includes before you go to the interview); compare the offering to other franchise offerings. If you are not familiar with the industry, also look at competitors as well – compare what they offer in relation to the one you are looking at. Remember to look at the franchise business from two angles: (a) Consumer perspective (i.e. from your customer’s point of view) as well as (b) from a Business perspective (i.e. what it offers you as an owner).
2. Make a List of Practical Questions for the Interview
Remember that in the interview with the franchisor, you are interviewing them just as much as they are interviewing you. If I was you, I would ask questions about: how long they have been in business; what was their motivation to start up the business; whether they have profitability models you can see; who the management team is and who will provide the ongoing support; the structure of the franchisor office (who does what and where they are based); what the plans are for growth in the coming years; whether they plan to collaborate with other brands, etc. Also make sure you ask about the induction process and how the first 12 months of owning the business will be like (generally).
3. Find out how Everyone Makes Money
It is important that the franchisor and the franchisee make money. Be wise and try to work out how profitable the franchisor will be based on the figures given. Bear in mind all of the resources and support they are promising you – can you see if it’s physically possible for them to provide it (i.e. having the team and resources to live up to the promises? My biggest tip here is to be wary of franchisors who profess to not have ongoing fees and yet there is a massive upfront fee. The best franchise models are % based – where as the franchisee makes more money, so does the franchisor. This ensures that there is motivation on both sides to continue to work together to improve the growth of the brand and the business.
Copyright © 2008 Shelley Pearson.
Reprints are welcome, as long as the by-line and article are published in tact and all links made live.
About the Author
Shelley Pearson, formerly an independent franchise consultant, created the Expert Franchise Guide business after identifying a serious lack of a provision of franchise business guidance products to small and medium sized business owners. She has developed her products in order to solve one of these business owners’ biggest operational obstacles: access to decisive, experienced and cost effective franchise business guidance. She is now an information marketer and has managed to attract both professional affiliations and clients who recognise and value her business acumen matched with a practical and empathetic approach.