The franchising model has become attractive to starting entrepreneurs because a system is already set in place in behalf of the new business owner such as inventory, payroll and marketing. With franchising, you eliminate some of the headaches that you would commonly have when starting a business such as looking for a cheap and reliable supplier. It is leverage over an existing company's established system. In most cases, franchising is a successful business model.
Recently, a lot of business people have jumped into this bandwagon and started offering franchise for their business. It is to my best surprise that sometimes the people behind such business are prominent people who are not well known for their business skills. Common victims who fall into a franchise scam are people who earn big time but have very little knowledge about starting a business. I myself along with some friends once tried to engage in franchising small carts but then assessed that we were not yet ready. There was too much risk involved and you know what the risk was? We were ignorant.
Yes, we were ignorant in starting a business. A friend of mine who's already established in putting up his own business said that when starting a business, you should first research your market, analyze the Strengths, Weakness, Opportunities and Threats (SWOT) and make a business plan. Make a plan and the battle is already half won.
In the book The One Minute Entrepreneur it says that Success Comes when Opportunity and Preparation meets. If franchising is an opportunity then preparation is equipping yourself with all the knowledge you can acquire before getting into business. Remember what the historical chinese general Sun Tzu said about knowing yourself and knowing your enemy, then you will not have to fear the outcome of a hundred battle.
It doesn't mean that you have money to invest into a franchise that you should quickly invest on a franchise. Take time to research and be diligent and you can avoid falling into a scam.
Quick Tips To Avoid a Franchise ScamResearch the company - The franchising company must be operating for a minimum of 1 year. More years is preferred. Check for the mission and vision statements and whether they make sense.
Ask previous or current franchisees - The best people to ask are previous or current franchisees. Are they happy with the way things are going or not? Why? Do not be shy or afraid to ask! The price is way too high to for being afraid or shy.
Check the internet for forums related to the same company - You will sometimes see rants about them over the internet which can be true or not but should help you become more vigilant.
Do the numbers - Make a reality check by taking into account the numbers that are being given to you such as the return of investment. Is it realistic? Consider other operational expenses, inventory, rent, and wages for your employees.