In the modern business world, there are a few ways to establish yourself. You could go after your dreams of innovation and attempt to revolutionize the world and become an entrepreneur, or you could hatch a startup and build your business from the ground up.
Another convenient way for an average citizen to toss their hat into the business ring is to become a franchise owner. With a minimal investment, you can have a piece of an established business, and reap all the rewards. Well, it sounds good in theory, but it’s actually not as simple as it sounds.
A franchise is just as big of an undertaking as starting a business from the ground up or developing a product and bringing it to the world market. And, there are a few risks involved that many don’t initially consider.
Here, we’ll explore a few of the risks that come along with franchise ownership.
Structural Issues
A franchise company will purchase (or build) commercial locations all over a region in order to expand its business empire and reach a broader customer base. Sometimes older buildings are acquired for this purpose, and this is where problems come into play.
Older structures come along with years of wear and tear, and correspondingly, they come along with years of problems that will have to be fixed as well.
For example, you could be purchasing a franchise in an older building that has significant structural issues, and these will all need to be addressed. Or, you could have infestations of some sort and even faulty electrical work.
Perhaps the worst is if you buy into a franchise in a building in which asbestos is present. This hazardous material will have to be removed due to the harm it can cause to human beings. In fact, many sufferers of mesothelioma are filing lawsuits due to asbestos exposure, and you don’t want any costly legal trouble.
High Crime Areas
You might remember your favorite childhood restaurant that you begged your parents to take you to when you were younger. And you might have some wonderful memories from when this was a brand new place in the neighborhood.
Over time, some areas of our community become run down. Time changes everything, including our favorite childhood neighborhoods. The simple fact is, you never know what the future will hold when an area matures.
All this considered, you want to be very cautious when you look into buying a franchise for this very reason. For example, the franchise location you’re considering could be in an overdeveloped location, or it could have attracted the wrong element over time.
Do your homework concerning area demographical data prior to investing in any franchise, because you don’t want to inherit a location within an area known for frequent crime.
Popularity and Reputation
Most investors feel that a franchise is a safe investment simply because of the established customer base and popularity that is already evident with a specific brand. The only problem with this strategy is that a particular franchise location’s reputation might be tarnished due to previous ownership.
A franchisor is essentially dependent upon a franchisee to keep the reputation and quality of a particular location up to par with company standards. When a franchisee fails in this regard, this can create a reputation in the community that may follow that particular franchise for years to come.
Prior to investing in a franchise, do your homework and look at reviews from the local community over a period of several years. This will alert you to any possible reputation issues that a location may be hiding.
Investing in a franchise is just as big of a decision as starting a business from the ground up. This not only takes a lot of work and dedication, it takes a lot of due diligence to understand and become knowledgeable about how a brand operates. As long as you do your homework, this will ensure that you’ll make a sound investment.
Danella Yaptinchay is the managing director of Full Suite, a service company providing back end support to small businesses. She is a cofounder of Co.lab, a coworking space, and of the media company Homegrown.ph. In constant pursuit of balance and self-development, she tries to apply the practices of yoga to her daily life.
