How should you look for the right franchise system?
How can the traps and stumbling blocks in franchising be avoided?
The growing interest in franchise systems has over the recent years attracted an increasing number of black sheep. Fraudulent profiteers are very much attracted by the entry fees, which can sometimes be high. It is even more difficult for future franchisees to identify systems which have not been well-developed or not yet been tried and tested where companies have chosen the path of franchising out of genuine conviction or naivety. If early on the future franchisees succeed in roughly sorting out the good from the bad they will save themselves a great deal of time and frustration. Serious franchising consists of the realisation of a convincing business idea, the marketing of a tried and tested product or marketable service, the provision of know-how which is not generally available, the development of a comprehensive organisation system, the registration and publicizing of property rights as well as putting into the business sufficient capital, established financial standing and business commitment. The following point towards a lack of reputableness:
Box Number Advertisements
The reasons for anonymous franchise offers are generally to do with trial runs for a system which has not yet been tried and tested, to build up a pool of interested people to mediate business or dubious offers for credulous prospective candidates. You should also be careful not to confuse franchise systems with the so-called multi-level marketing which can sometimes be found on the market under the name of franchising. Reputable franchisors rarely need to hide behind box number advertisements to find their partners.
Potential franchisees cannot expect to obtain a detailed and factual explanation of a franchise system by visiting a mass function for which there may also be an entry fee. Reputable franchisors prefer to meet candidates individually and choose their partners having carried out detailed meetings and consultations.
Grammatical mistakes, typing errors, logical inconsistencies as well as incomplete calculations all point towards the fact that the system is lacking in professionalism. Reputable franchisors take a lot of time and effort to provide a correct and convincing presentation of their system.
In all probability the facilities and employees do not fulfil the expectations of a modern systems head office if franchisors are obviously reluctant to let a potential franchisee visit them. Reputable franchisors are extremely interested in both sides getting to know each other in their respective surroundings.
Potential franchisees should be extremely suspicious of sensationally drawn-up franchise offers which suggest that by joining the system they will make their fortune. In the interest of both parties reputable franchisors try hard to present the opportunities and risks as objectively as possible. One of the aspects of the "European Code of Ethics for Franchising" is that franchisors should keep to certain principles when trying to find franchisees.
Lack of Risk
Caution should also be exercised with advertisements which promise "independence without risks" or "opportunities to earn large sums of money without risks". Attracted by the success of franchising untrustworthy franchisors advertise in their own favour hoping to make quick money through the entry fees without offering the sufficient "quid pro quo". You should either avoid such franchisors as you will meet crafty salespeople or you should have these systems assessed by external specialists.
Lack of Proof of Success
Convincing words do not prove that a system is successful. Reputable franchisors prove that their system is workable by giving concrete facts and contact addresses of franchisees who have been in the system for a long time. There are, of course, many new and young systems which are still in their trial phase and which conclude pilot agreements with future partners. These should be individually assessed and negotiated.
It is often the case that the first franchisees are used as guinea-pigs who, when their business fails, are replaced by new partners who, in turn, benefit from the experience gathered by the head office. Reputable franchisors have at least 70% of the necessary know-how during the ‚paper phase‘ which is then rounded up to 100% during the ‚pilot phase‘.
Caution should also be exercised when a franchisor is only interested in the financial strength of potential partners. For reputable franchisors the personality, professional experience and social environment of a candidate is just as important as his wealth.
Pressure of Time
Extreme caution should be exercised if a franchisor pushes towards a quick conclusion by pointing out that there are only a small number of areas available. Reputable franchisors give potential partners sufficient time to be able to examine the documents in detail and obtain professional advice.
Obligatory Conditions to Maintain Secrecy
Before signing a contract which binds a franchisee to long-term obligations, it is essential that potential franchisees obtain advice from experts. As franchisors must also divulge company secrets at the provisional agreement stage it is normal that agreements on competition and maintaining secrecy are concluded. Should these agreements be violated then a contract penalty is due. Franchisors must conclude such agreements in order to protect the other partners in the system if their system could be endangered by divulging company secrets to a third party not yet bound by contract. Reputable franchisors, however, do not prevent the examination of the system by insisting on exaggerated conditions concerning maintaining secrecy.