I’ve watched a lot of people buy their first franchise. The ones who struggle usually didn’t pick a bad brand. They made a few avoidable first-time franchise buyer mistakes before they ever opened the doors. Here are the ones I see most.
1. Falling for the Brand Instead of the Business
You love the product, so you assume you’ll love owning the business. Those are two different things. Ask yourself what your actual day will look like.
2. Skimming the FDD
The Franchise Disclosure Document has 23 Items, and the FTC tells buyers to read every one. Most first-timers jump straight to the fees. Start with my guide, What Is an FDD, and What Should I Look For in It?
3. Budgeting for the Low End
Item 7 gives a range. Plan for the high end. The FTC suggests estimating personal living expenses for up to two years, because breaking even can take more than a year. More in How Much Does It Really Cost to Buy a Franchise?
4. Trusting Numbers That Aren’t in Item 19
Under the FTC Franchise Rule, any earnings claim a franchisor makes has to be in Item 19. If someone gives you numbers outside it, be careful. And read Item 19 itself closely: averages and gross sales can paint a rosier picture than reality.
5. Not Calling Enough Franchisees
Item 20 lists current and former owners. The FTC calls talking with them possibly the most reliable way to check the franchisor’s claims. Call more than the two names on the sales rep’s reference list, and call people who left.
6. Signing a Questionnaire Without Reading It
Some franchisors ask you to sign a statement about whether anyone gave you earnings information. The FTC warns that if you got such information and don’t report it fully, you may be giving up the right to challenge it later. Be honest on that form.
7. Skipping the Franchise Attorney
These contracts are long, and the FTC notes that a problem found after signing may be very expensive to fix, if it can be fixed at all. Hire an attorney who knows franchising.
8. Ignoring the Back End of the Deal
Renewal isn’t automatic. The FTC points out a franchisor may decline to renew or offer new terms, like higher royalties or a smaller territory. Read Item 17 before you sign, not in year nine.
9. Misjudging How Much Time It Takes
“Semi-absentee” sounds great. But check Item 15, which says whether you must run the business personally, and ask owners how many hours they really put in. See Semi-Absentee Franchises: Can I Keep My Day Job and Still Own One?
10. Not Knowing Who’s Advising You
Brokers can be helpful, but the FTC notes they often work for franchisors and get paid when a sale is made. Ask how your advisor is paid and how many brands they represent. That’s a fair question for anyone, including me.
The Common Thread
Almost every mistake on this list comes down to rushing. You get at least 14 days with the FDD before you can sign or pay. Use all of it. For the questions to bring to those conversations, see 10 Questions Every First-Time Franchise Buyer Should Ask Before Signing.
Let’s Talk Before You Sign
If you’re looking at your first franchise and want someone to check your thinking, I’m glad to talk. No pressure. Call me, John Henning, at 267-417-4980.
Sources
- FTC, A Consumer’s Guide to Buying a Franchise (Sept. 2020): https://www.ftc.gov/business-guidance/resources/consumers-guide-buying-franchise
- FTC Franchise Rule, 16 CFR Part 436 (eCFR): https://www.ecfr.gov/current/title-16/chapter-I/subchapter-D/part-436
- 16 CFR 436.5, Disclosure items (eCFR): https://www.ecfr.gov/current/title-16/chapter-I/subchapter-D/part-436/subpart-C/section-436.5