While franchising is often promoted as an opportunity to buy into a proven business model, owning a franchise carries no guarantees. No matter how well a business is designed, or how often the model has worked elsewhere, fledgling franchisees discover each year that no business — not even a so-called proven one — is foolproof. To make matters worse, some franchisers over-promise and under-deliver. And franchising also has its share of outright scams designed to fleece unsuspecting, would-be entrepreneurs out of their money.

Many franchise offices are profitably run businesses. If you are taking into account a franchising prospect, it is very important that you do your groundwork correctly and know the facts previous to signing franchising agreement. Proper scheduling, guidance and research can reduce the risk of losing your hard earned money in franchise business.

Costs may be higher than you expect. As well as the initial costs of buying the franchise, you pay continuing management service fees and you may have to agree to buy products from the franchisor. The usually includes restrictions on how you can run the business. You might not be able to make changes to suit your local market. The franchisor might go out of business. Other franchisees could give the brand a bad reputation, so the recruitment process needs to be thorough. You may find it difficult to sell your franchise - you can only sell it to someone approved by the Franchise Company. All profits (a percentage of sales) are usually shared with the franchisor.

Training is one area where franchisers often fall short. A new franchisee may think he or she will get a lot of training, only to find out it’s a one-week crash course.

Competition is another source of potential trouble for franchisees. With hundreds of franchisers vying for a slice of their markets, some sectors are jammed with competitors. Crowded fields include motels, senior care and oil changes.

Even when a franchise succeeds financially, it may not be satisfying to the franchisee. For instance, a frequent franchising come-hither is the chance to be one’s own boss. Yet that may not turn out to be quite the case, as a franchisee typically must rely on the franchiser to call the shots.

Franchising necessitates a huge amount of work to guarantee success. It is an exciting way to put forth your service or product to your target market. The basic ground work begins with gaining information and knowledge about the business model of the parent company, its phases of growth, the present market share, and the future road map of the organization.

You will need to gain knowledge not only about the products and/or services of the parent Franchise Company, but you should know the work ethics, company guidelines in doing business, marketing techniques, and other essential facets of managing a business. Managerial and administrative experience holds the franchisee owner in good stead. If guided properly, a franchisee can flourish in better manner. If they are provided support by the franchisor and are enthusiastic to gain knowledge of the ropes and act in accordance with equipped systems and policies; then the financial gains are handsome.

However, some franchises incur huge losses and eventually do not succeed because they could not sustain keep themselves afloat in the changing marketing environment. Feeling the market pulse and selecting proper locality are two vital points that best franchises never take lightly. These successful franchisors are best at judging these two key elements. They do lots of primary and secondary research to know if the prospective market has got enough demand for the product or service that the franchise is offering. For example, if a particular locality has already got few good Chinese restaurants then setting up another Chinese restaurant may not be the most profitable option. Aim to fill up the community's want for a certain product or service by opening a franchise that can provide what is missing and needed is a better business decision.

Another major reason why several franchises fail is because the owners do not have adequate amount of financial patronage to get through the rough times. As an owner, there may be occasions when you will have to do without a paycheck in sequence to keep your business running and make sure your workforce is paid. It is imperative that you, as an owner, you have adequate working capital or capital reserve to sail your business through the rough weather.

If you work with the franchisor and stick on to their established business approach, you should be able to be profitably run your business. Keep the lines of communication open between you and the franchising company. They are there for supervision and assistance. After all, they want to see you prosper because it would mean more success to them.

Regulators emphasize that before potential investors write any checks, they need to read and be sure they understand the disclosure documents — called Uniform Franchise Offering Circulars — that franchisers are required to file in certain states. In places where these documents aren’t required — which includes most states — prospective buyers should insist that the Franchise Company supply them anyway.

Some experts warn that most franchise contracts are designed to put the franchisee in a weaker, disadvantageous position. And some point out that while regulators mandate franchisers provide a circular, they don’t review these documents for truthfulness. At best, offering circulars may be hard to understand. So it can be a good idea to consult a professional such as an accountant or lawyer with some experience in franchising.

In studying the disclosure documents, it’s particularly important to look at the pages showing franchisee turnover. Typically, names and phone numbers of former as well as current franchisees are listed. Contacting some former franchisees and asking why they’re no longer in business often can save the inquirer from a similar outcome.

Too many would-be franchisees don’t do nearly enough homework before signing on the dotted line. Experts caution those enamored of a franchise investment to undertake a dispassionate analysis of the opportunity before making a commitment. Clients to approach franchise opportunities with a healthy dose of skepticism.

Those disclosure documents that Franchise Company provides can be hundreds of pages long with information on financial status of the company, any litigation it might be involved in or other factors that could determine success.

“It should be accurate and should provide the groundwork for the information you’ll need,” he said. “But you can’t be afraid to ask more questions.”

To protect yourself against scams, the best advice is to take your time. If a seller tries to get you to invest as quickly as possible, it’s a warning sign. In general, the more promising the pitch, the more cautious would-be entrepreneurs should be in considering it.

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