The Risks of Being a Franchise Owner

The thought of becoming a franchise owner is exciting to many investors – and it offers the promise of big rewards. In many ways, opening a franchise business does pose fewer risks than going it alone and trying to open up a business of your own from scratch. However, that doesn’t mean that owning a franchise business doesn’t pose a few risks of its own. These are a few risks you really need to be on the lookout for before you invest.


Running Out of Money


Franchise ownership comes with a long line of strings attached. Many of these “strings” are financial in nature. Running out of money isn’t as far-fetched as it may sound. Aside from the initial investment, just to carry the franchise name, there are other financial expenditures that must be made in your business in order to comply with the franchise standards along the way.

Some franchises require ongoing fees that serve to lower your overall profit and reduce the amount of money you can reinvest into the business. It’s really important to research the franchise thoroughly so you have a clear financial picture of the total investment they expect from you and know your own financial situation and ability to contribute well before you sign on any dotted lines.


Competition With the Same Franchise in Your Market


Competition can be a good thing if you’re competing against different franchises. Your franchise has the opportunity to come out on top. However, if you do not choose a franchise that offers a protected territory, you could end up losing the war for business in your community by a more strategically placed franchise store within the same franchise in which you’re trying to build your business. This is something you need to consider carefully when selecting a franchise and check to see if protected territories are available and how much ground those territories cover.


Lack of Corporate Support


Support and training are critical elements for a successful franchise relationship. It’s one of the main selling points people from other industries have for investing in a franchise business – despite their lack of experience in the field. Franchises promise the benefit of a proven road-map to success investors can follow. Do a little consumer research of your own and find out what other franchise owners have to say about the support the company provides. This will help you determine if the franchise you’re considering really is a worthy investment or not.


There are many things you can do in order to mitigate your risks when investing in a franchise business. Take a little extra time to do your homework before you decide which company is your best investment option. Hire a lawyer and use your attorney to look over all documents for signs of hidden fees or requirements that could cost you even more in the end. Finally, invest in business insurance coverage to help protect yourself and your business from these risks and many more – this may be the single most important step you take for the sake of your financial success as a franchise owner.