How not to fall for a bad franchise?

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How not to fall for a bad franchise?

8 minutes of reading

How not to fall for a bad franchise?

We talk about how to identify a bad franchise and what to do if you get into a bad company.

Content

Franchise – good or bad?
What is a bad franchise?
What should I do if I get into a bad franchise?

17.04.2024

How not to fall for a bad franchise?

❝ Business is always a risk. Buying a franchise reduces it. Or not?

The market is full of scammers and not too responsible franchisees, so you need to choose your future business and curators carefully. Some "bad" franchises are visible immediately, some reveal themselves later. One way or another, deception can always be revealed. The main thing is to do it on time.

Franchise – good or bad?

Whether a franchise is worth it depends on the franchise, the franchisee and the franchisor. A ready–made plan and assistance in running a business is not a ready-made established production and is not a guarantee of success. Good statistics and a large income require hard work on both sides.

By itself, this form of doing business has its pros and cons, as well as opening your own business without outside help. But in order not to face disadvantages, get into "good hands" and become a successful franchisee, you need to choose a franchise wisely.

The effectiveness of business decisions when working with a franchise depends on both the franchisor and the franchisee.

What is a bad franchise?

Sometimes the fact that a business is a failure or simply not suitable for a franchise can be seen already at the stage of the name and idea. But the real pitfalls lie deeper, and they are not so easy to recognize.

We have collected several points that say that such a franchise is definitely not worth taking:

1. A vague contract

A bad franchise is given out by a bad plan.

Problems often begin already at the conclusion of the contract. Controversial conditions, silence and unwillingness to make edits are a clear bell. For example, the inability to repay a lump sum, too high or no royalties at all.

The absence of royalty may indicate that the franchisor is not interested in developing its franchises. He receives a lump sum and does not have to worry about how the franchise develops further: what conditions, plans and profits are there.
Too high royalty can prevent your business from developing. The franchisor must take into account your budgets and set the optimal price.

The contract must be clear and take into account all legal aspects.

A beautiful presentation and a friendly manager can easily throw dust in your eyes and disappear with your money. If something in the contract bothers you, contact a lawyer and clarify all the points before its conclusion. It is better to spend money on legal advice now than to lose hundreds of thousands later.

2. Unknown brand

We more often choose what is familiar to us.

If the franchisor is not known in the market, opening a branch under his name may not be better than starting a business yourself. In addition, fame often seems to us to be a guarantee of quality. This way you and your customers will have more confidence in your business.

Another reason to choose a well–known brand is that it is more likely to have a registered trademark. There are many scammers in the franchise market who forge trademark registration certificates, steal or plagiarize others' ones.

Fines for illegal use of someone else's trademark start from 50,000 rubles for legal entities, not counting the compensation that the copyright holder may demand – no one will figure out whether you have become a victim of fraud.

To avoid this, check trademarks in publicly available official registries or contact specialists to confirm that the trademark belongs to the declared person.

A well–known brand will bring new customers more easily.

3. Irrelevant materials

First of all, the franchise provides the franchisor with a business plan. It should be clearly thought out, have real statistics and take into account all the risks. The franchisor must monitor the market, be able to guide you and help you. If he only tells how everything was fine with him, does not mention the risks and his negative experience – there is clearly something wrong here.

It happens that the franchisor deliberately embellishes statistics or omits details. For example, it provides the figures of the most successful branch in the center of a large city when you plan to open in a residential area; it does not say that some of the enterprises have already been closed, or does not indicate them on the map at all.

In this case, it is better to check the information yourself. Search the Internet for branches, other franchisees (and chat with them), compare figures from open sources or involve lawyers.

If you are told that it will be easy, then you are most likely being lied to.

4. Hype

If you need a stable and long–term business, do not be fooled by "hype" topics: they quickly go away and are forgotten.

Distinguish hype from trends. For example, a hype business on protective masks during a pandemic. The trend is IT services. The pandemic, like any natural trend in the world and the Internet, is ending, but digitalization is happening and will continue to happen everywhere for a long time.

Hype gives the business a good start and immediately brings a lot of customers. But in order for such a business to remain on the radar and things went steadily, you will have to try. Therefore, if you still want to purchase a "hype" franchise:

Хайп даёт бизнесу неплохой старт и сразу приносит много клиентов. Но, чтобы такой бизнес остался на слуху и дела шли стабильно, придётся постараться. Поэтому, если вы всё-таки хотите приобрести «хайповую» франшизу:

be careful with franchisors. Hype is a great opportunity to earn money not only for you, but also for them, and in conditions of hype, not everyone tries to plan a business efficiently.
remember similar phenomena over the years: how do businesses that are open on something popular in your region live now?;
assess whether the business will be relevant and in demand when the hype passes;
plan how you will retain your customers after the hype. The franchisor should also take into account that the noise around his business will soon subside.

"Hype" franchises should be approached carefully.

Read also!

Intangible motivation of employees

Rules of business correspondence

What should I do if I get into a bad franchise?

If a loss-making business without working models and plans still ended up in your hands, and the franchisor is not going to do anything, it would be optimal to get rid of such a business. How? There are several options.

1. Sell the business and franchise

In case the franchisor does not demand the impossible, but it does not help either.

It happens that the new owner "picks up a loss-making business from his knees." This option will be good for you, because you will not lose everything, and for the franchisor, because his branch will begin to generate good income in the future.

2. Close the business

You have lost money and time, and the franchisor has lost his branch. You can disperse peacefully until you go into negative territory.

3. File a lawsuit

Spoiler: you are unlikely to be able to sue all the funds spent on the franchise.

Only if the franchisor has not fulfilled the specific points specified in the contract, and you can prove it (for example, did not provide any materials within the specified period), this can be compensated. In other cases, success was not guaranteed to you, and the management company is not responsible for what you did not succeed.

When running any business, be careful and hire qualified lawyers.

Conclusion

To summarize. How not to fall for a bad franchise?

Read the contract and consult with lawyers. All information should be accessible and understandable, and the contract should be drawn up correctly and without loopholes. By the way, the judicial history of the company can be viewed on the websites of district and arbitration courts. Just in case.
Check the information yourself. Do not rush to be fascinated by beautiful words and big numbers – check everything yourself in open sources or with a lawyer.
Keep an eye on other franchisees. As a rule, franchisors publish materials about their franchisees: posts, news, interviews. Branches can also be tracked on social media, and some even have their own separate websites. Even if publications on the Internet are only the tip of the iceberg, they can also tell a lot about it.
If you do fall, close or sell your business and franchise, or sue the franchisor.

We hope our advice was useful, and you will be able to recognize a bad franchise and not stumble upon scammers.

Running a business is not easy – we know this and are able to work with franchisees from different regions and countries. Join the CODDY Programming School team and teach with us.