How to Avoid Risky Franchise Opportunities
Franchise opportunities are significant investments. And like any investment, they come with risks. However, some of these opportunities carry far more risk than others. Learning how to avoid risky franchise opportunities can shield you from putting your time and money toward a dangerous venture, increasing your chances of personal fulfillment and financial independence.
At Visiting Angels®, we recognize that our success is tied to the success of our franchisees. It’s important to us that our franchisees go into franchise ownership with their eyes wide open and with full confidence in their investment. That’s why we encourage all prospective franchisees to evaluate franchise opportunities — including our own — for their risk potential.
Tips for Avoiding High-Risk Franchise Opportunities
Be Wary of Flash-in-the-Pan Business Concepts
Risky Business: Every year, the franchise market sees a wave of suddenly ultra-trendy business concepts. Many of these franchise opportunities take advantage of new or unusual concepts, which propels rapid growth.
Safe Investment: Once the “new” factor wears off, many of these fast-rising franchisors experience an equally fast fall from grace. This kind of explosive growth rarely sustains itself, especially when powered by novelty or quick-changing tastes. While familiar business concepts and stead growth patterns might not feel as alluring, they’re much less likely to flame out.
Investigate Industry Trends and Economic Markers
Risky Business: When looking at franchise opportunities, it’s important to consider their context. A brand might be in the middle of an impressive upswing. But its stability might depend on a precarious industry or a down-trending economy. Without investigating these factors, you could end up buying a franchise that’s uncomfortably close to its expiry date.
Safe Investment: Before committing to a franchise, do your homework on the industry and economic markers of that industry’s strength. Can you expect sustained growth over the next 5 to 10 years? Or are you seeing red flags for an upcoming downturn?
Read the Franchise Disclosure Document in Detail
Risky Business: A surprising number of franchisees purchase their franchise without thoroughly reading the Franchise Disclosure Document (FDD). By skimming important sections, they end up missing smaller details that could point to a risky investment.
Safe Investment: When you’re considering franchise opportunities, there’s no more important resource than the Franchise Disclosure Document. In addition to some of the more obvious data that you’ll find in an FDD, you can also find warning signs of risky franchise offering. These include:
- Declining franchise unit counts
- Frequent litigation between franchisees/franchisor
- Precarious, unstable, or declining finances
Pick a Franchise Opportunity Suited to Your Strengths
Risky Business: When you’re presented with what looks like a surefire investment, it’s hard to say no. But if you purchase a franchise that’s poorly suited to your skills, interests, and work habits, you’ll struggle to make the franchise work.
Safe Investment: Even the strongest franchise offering will only succeed in the hands of the right franchisees. Seek out franchise opportunities that align with your strengths. Find a franchise that’s not just a strong opportunity, but a strong fit for you personally.
Match Your Choice of Franchise to Your Market
Risky Business: A great business concept can’t make up for a weak or disinterested market. Yet every year, countless entrepreneurs make the mistake of opening franchise units in markets that can’t support their business.
Safe Investment: In the same way that it’s important to find a franchise that’s well-suited to your strengths, it’s equally important to find one that’s well-suited to your local market. Take the time to perform detailed market research, assess the competition, and make sure that your market can support your franchise of choice.
Give Yourself a Comfortable Financial Cushion
Risky Business: If you find what seems like the perfect opportunity, you may be tempted to make the purchase work, whatever the costs. But franchise opportunities require a significant investment of capital, and it’s not uncommon for franchisees to put their houses or retirement funds at risk to purchase the franchise they want.
Safe Investment: Even the most seemingly ironclad business has the potential to fail. So it’s never a smart idea to risk your financial well-being — which is tied to your emotional, mental, and physical well-being — on a franchise venture.
Listen to Past and Current Franchise Owners
Risky Business: There’s no better way to get a sense of a franchise opportunity than by speaking with actual franchisees. But some buyers only end up reading testimonials or speaking with franchisees recommended by the franchisor.
Safe Investment: To get a true sense of how franchisees feel about their franchisor, you’ll want to do two things:
- First, seek out information from independent publications and organizations. We suggest starting with the Franchise Business Review®, which conducts an annual franchisee satisfaction survey across hundreds of brands.
- Second, contact franchisees by yourself based on information found in the Franchise Disclosure Document. Try to speak with both past and current franchise owners and see if you can find franchisees in similar markets to your own.
Looking for franchise opportunities in the senior care sector? Call Visiting Angels at 800-365-4189 today or submit an online request for detailed information.