Buying a franchise is the best option for people who want to go into business without the hassle of having to come up with a product and developing a brand. Franchising has been available for a few decades but it has been attracting a lot of interest recently. This doesn’t mean that all franchises are the same or franchising always leads to high profits. While franchising has opened a new realm of opportunities for budding entrepreneurs, this process is often trickier than it might seem at a first glance. The first and maybe the most important step in buying a franchise to pick one of the most profitable franchises. Quiznos was one of the hottest sandwich chains a decade ago. However, the company went into trouble in recent years. Four years ago 6900 franchisees sued the company and settled for $95 million because Quiznos overcharged them for supplies and failed to provide adequate marketing support. The company was again hit with lawsuits last December. The claims were similar – the company put its profits ahead of its franchisees who are struggling to break even.
Quiznos isn’t the only franchise that had disgruntled franchisees. Burger King was sued in 2009 by the National Franchisee Association (NFA) because the company set the price of its double cheeseburger at $1 which understandably hurt the profits. Low priced items lose money but they attract traffic to the restaurants. The parent company has incentives to drive traffic to the restaurants even though the promotions are losing money for restaurant owners.
The main point of these examples is that there are several pitfalls to avoid when buying a franchise. Please check our lists of 6 High Margin Franchises to Invest In and 10 Best Fast Food Franchises To Purchase. Following, we would like to present you with a list we have compiled of the top 5 pitfalls to avoid when buying a franchise.
If you’ve been thinking about opening your own franchise but don’t know where to start, this is the list for you. Let’s take a look at the countdown.
No. 5: It might not be that easy to leave
Whenever someone buys a franchise, they enter a legally binding contract with a particular business. And, like any other contract, you will be required to adhere to its clauses. You won’t be able to leave whenever you want and, in addition, you might also have to abide by other rules. For example, you may be forbidden to open a similar business for a number of years after your franchise agreement has expired.