Great question. While many red flags may be brand and industry specific, typical red flags include: (a) a franchisor’s failure to include cost data such as cost of goods sold, labor cost, and in the case of a restaurant, food cost; (b) a service based franchisors inclusion of company owned data that is not representative of the franchise opportunity they are selling, i.e., where the data relates to a service territory or operating territory that is larger than territories offered to franchisees; and (c) franchisee performance data that includes or indicates significant variation between top performing franchisees and lower performers - don’t ignore average and median data. Also be on the look out for Item 19s that do not include clear definitions and always validate by contacting existing franchisees and learning about their experiences and financial performance.
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For Item 19- what sort of things being excluded from this statement would be a red flag? What if the franchisor refuses to provide more detail?
Great question. While many red flags may be brand and industry specific, typical red flags include:
(a) a franchisor’s failure to include cost data such as cost of goods sold, labor cost, and in the case of a restaurant, food cost;
(b) a service based franchisors inclusion of company owned data that is not representative of the franchise opportunity they are selling, i.e., where the data relates to a service territory or operating territory that is larger than territories offered to franchisees; and
(c) franchisee performance data that includes or indicates significant variation between top performing franchisees and lower performers - don’t ignore average and median data.
Also be on the look out for Item 19s that do not include clear definitions and always validate by contacting existing franchisees and learning about their experiences and financial performance.
@@entrepreneurskickass That's incredibly helpful- thank you!!
@@keeganslattery Absolutely!