Investing in a franchise can be a great opportunity, but how do you know if this franchise idea you are getting behind is a great long-term investment – not just a trendy fad?

An attorney can help you steer clear of falling victim to the ever-changing consumer world.

Franchises And Trends

We all know that a trend can come and go. Simply looking at your high school photos is a clear example of that! Some trends do stick and stand up to the test of time.

Franchises can simply be a short-term consumer fad. A solid, cutting-edge franchise is built to last, capitalizing on consumers’ long-term needs.

So, how can a franchise investor see into the future and know if you are making a smart investment?  

Without a crystal ball, it’s not cut and dry. There are some clear signs that can show if a franchise idea has staying power.

When jumping into a franchise investment, you need to know that you are jumping into a world that does have some uncertainty. So, it is best to be as informed and prepared as possible.  

Look for the signs that alert you to beware – the red flags.

So what are the red flags to look out for?

Franchise Fad Red Flags

When investing in a franchise business, look out for the red flags that this opportunity may actually be a sinking ship.

Red flags to look for:

  • The franchise is a one-trick pony: If the franchise you are investing in only has one service or product to sell, beware. While some businesses have thrived with a singular product to sell, many do not. Banking on just one item’s success is risky. What if that item goes out of style too soon? Or, what if that singular focus becomes obsolete due to technology? The wheel of life keeps turning, and often new ideas replace old ideas in swift progression.
  • Sudden growth bubbles can pop: A fast-growing franchise industry is not always a sure sign of long-term success. A fad by definition grows fast, and then quickly fades – together with your investment. If a franchised concept appears to grow too fast, beware that the idea bubble may one day pop. Be very careful to investigate trends in the marketplace to ensure that your product and/or services don’t stale too quickly. Too much competition can kill a business. 
  • Inexperienced franchise owners: Everyone has a great idea. Franchises are launched often – packaged and sold at a rapid speed. Unfortunately, the owners may not have a proven history of knowing how to run an effective business, or know the industry and its market. If the franchisor does not have a strong business background with a proven history of success, beware. Having a vision, and even capital, is not enough. It takes experience and a keen eye to spot a truly profitable trend which will last. Proceed with caution – as lack of experience or industry/market knowledge is a red flag. 
  • Idea that isn’t needed: Does the product you are investing in garner consumer interest? Our economy right now is tight, so be cautious about any services or products which are too high-end. Or, is your product or service a niche market that is too difficult to sell to a broader audience? Is your product something that is a one-time-only purchase, or a long-term need? The reality is that you need to sell your product or service to your customers. Look for franchise ideas that are perceived as needed and wanted, and worth the customer’s time and money. 

With all of these risks, you may be wondering, Is it worth owning a franchise?

Yes – an experienced franchisor will be able to sail smoothly in a difficult economy. They should understand their industry, their end-customers’ needs, product profitability, and all of the ins and outs of their business market.

Franchise Lasting Power

Is the franchisee a small business? Yes. As with any business investment, the most important goal – from the start of your franchise search – is to do your due diligence (research). 

Research is invaluable. Here are some questions to ask of the franchisor:

Franchisor research questions:

  • Does the franchisor have other successful franchises? How many, and is their market comparable to your intended market territory?
  • Are the other franchise owners happy and successful with their investment?
  • Does the franchisor offer sufficient and timely support and training? 
  • Is the franchisor accessible?
  • What are the franchising royalty and marketing fees? WHat other on-going fees will impact your net profits?

Product research questions:

  • Is there a competitive market in your area? 
  • Is there a long-term need for this product or service?
  • Does this product or service offer a solution to a problem?
  • Does another product already meet this need?
  • Are customers’ needs satisfied?

General research questions:

  • How to invest in a franchise wisely?
  • What are the most important facts about franchises, and do these facts fit you lifestyle?
  • How does a franchise grow?

Research as much as possible about franchises and how they work. When deciding on a specific franchise system, be sure to get as much customer feedback as possible, and also reach out to other franchisees (regardless of their current success rate) to see if they are satisfied or have specific concerns about the franchisor before signing a franchise agreement and investing in a franchise.

Is a franchise a good investment? Are franchises worth it?

It certainly can be, and yes! Passive income franchises do exist, which allow investors to manage more than one business, or continue a career while you own a franchise business. Be sure to have a clear franchise business plan with set goals in mind.

Take the time to complete due diligence, so that you may choose the right franchise investment fit. 

Legal Protection

Before making a substantial financial move, it is always best to consult with your attorney to narrow the franchise risks. It’s their job to keep you as safe and secure as possible. 

Navigating the trends and fads, franchisee rights and franchise owner responsibilities, is a tricky business. Kilcommons Law can help you steer through these waters safely. 

We represent franchisees to all types of franchise businesses – with clients in athletics, health and beauty spas, medical (urgent care and pharma), manufacturing distribution, construction, restaurants, self-directed IRA trusts, private academic schools, commercial landscaping, commercial real estate, fitness, and more. 

Reach out today! Let Kilcommons Law advocate for you.

© Kilcommons Law, P.C. 2023