For the aspiring entrepreneur who wants to minimize the risks that come with running a business, buying a franchise is a smart idea. But there are certain risks involved in franchises too, whether you’re seeking to invest in a virtual office franchise or some other business. Here are three common traps to look out for:
For most franchise outlets, the franchisor receives a percentage of the total revenue you get on. But these aren’t the only fees you should expect to pay. That’s why it’s important to study the franchise disclosure documents to learn whether there are other charges you should be aware of. These charges usually include an entry fee and charges for training and marketing.
Misleading Average Revenue Figures
Before you fall in love with the lofty average figures a franchisor displays, you need to keep in mind that a few wildly successful franchisees can contribute to an impressive average revenue figure. Your franchise might not do as well, especially if you don’t possess the same skill set as these franchisees do. What you need to do is determine the median revenue of franchisees in your area.
Very Stringent Rules
The major advantage of buying a franchise is that you get a playbook of how to run your business successfully. But you need to be ready to lose some of your independence as a business owner. Some franchisors have very strict rules regarding what prices you can charge your customers, how to decorate your premises, how to market the business, and so on. Investigate the restrictions that come with the franchise and decide whether you’re comfortable with them.
Buying a franchise comes with a lot of benefits, but there are pitfalls you need to be aware of too. Taking the time to understand the potential traps in the franchise can protect you from making the wrong decision.