How to Research a Low-Cost Franchise

Does that franchise concept really deliver? Here’s how to find out.

By Carol Tice • edited by Dan Bova • Jun 03, 2009

Opinions expressed by Entrepreneur contributors are their own.

Markus Romero didn’t like crunching numbers or sitting behind a desk; he was busy managing nightclubs and operating mobile tanning salons in Las Vegas. But after he discovered Instant Tax Service, his attitude changed.

Warning Signs

As you dig for information on a low-cost franchise, watch out for these red flags, says Joseph Mathews, co-author of Street Smart Franchising:

• Bossy corporate culture. Beware if the franchisor talks about franchisees as if they’re children, or if franchisees say they can’t get managers on the phone. “If they’re like a parent or a benevolent dictator in an ivory tower, run like the wind,” he says. There should be a free flow of information, with franchisors valuing franchisees’ input.

• Underqualified managers. Is the franchise a family business, with relatives in key roles? Make sure managers have the experience to make franchisees successful.

• Franchisors who compete with you. Franchisors often reserve the right to open their own stores on your turf. Ask if they would remove that rule, Mathews says.

• Mandatory suppliers. Are you required to purchase supplies from the franchisor? If so, are their rates competitive? Watch out for situations in which you’ll be stuck paying too much.

Entrepreneur