5 Mistakes Prospective Investors Should Avoid

Buying a franchise is ideal for investing in an already successful business. Besides, who wants to deal with the teething challenges of a new business? The other good thing is that you become the boss in the designated market. On the other hand, buying a franchise comes with risks like any other business, but prospective buyers can succeed with a good approach and a balanced franchise agreement.

Buying a franchise means you’ll be avoiding common pitfalls associated with start-ups. Suppose you’re lucky and nothing affects your relationship with the franchisor. In that case, the investment can be lucrative, but if your partner–the franchisor, is a thorn in the flesh, you’ll always regret your investment decision. To protect your interests in the business, ensure all your concerns are addressed in the franchise agreement.

Mistakes to Avoid as a prospective Buyer

Franchising can be lucrative, but things could go wrong if you make the following mistakes:

1. Putting Lucrativeness over Passion  
Most prospective investors start by identifying the lucrative franchising businesses, thinking that they can also succeed if they start a similar business. While investing in lucrative business matters, there is a correlation between successful franchises and the passion of a business owner for that industry. Consider something you’re passionate about, and it will help you navigate the inevitable business hurdles that are sure to arise during the business.

2. Underestimating Costs

A franchisor will typically only ask for the franchise fee and ongoing royalties, which is only a fraction of the total cost required to establish the franchise. Other expenses can include overheads, hiring workforce, set-up costs, legal fees, and working capital.

Prospective buyers should request comprehensive breakdowns of all the necessary costs required to establish the business, and if you can’t estimate the total fees, it is advisable to overestimate.

3. Inadequate Research
Before committing your hard-earned cash to a franchise, there are many issues to research.

Prospective buyers should not take the franchisor’s promises at face value; verify the accuracy or authenticity of the claims from reliable sources. Some of the things to investigate can include prior brand failures, disgruntled clients, and past performance.

4. Failing to consult Existing Franchisees
Talk to existing franchisees to reveal any red flags the franchisor might be hiding. A transparent franchisor will be happy to introduce you to existing franchisees. Otherwise, know that they’re hiding something. If possible, visit new franchisees, particularly those who seem to be struggling–you might discover something important that the franchisor might have omitted.

Be attentive to franchisees who have a similar background to yours—worried that you’re not experienced in that industry or franchise? You might be persuaded after meeting others in your position.

5. Ignoring Legal Counsel

Most prospective franchisees consider legal counsel a waste of finances. Franchise law can be complex and requires the help of a franchise lawyer when establishing a franchise to avoid constant run-ins with the law.

Buying a franchise means risking your money in something you’re not experienced in. It would help if you did your due diligence to avoid the common mistakes made by prospective franchisees.