Four Danger Signals When Franchising
Not long after Randy Richey signed a franchise agreement to open three tanning salons in 2003, things started going awry.
His costs to build a salon in Centerville, Va., ran about $40,000 more than the $53,000 he was led to believe, he says, and his two other planned franchises were put into default before construction had even begun.Mr. Richey feels he was wronged by the franchiser, Planet Beach Franchising. An attorney for Planet Beach says Mr. Richey had problems because he hired an outside construction firm instead of using the one Planet Beach recommended, and didn’t break ground on his last two franchises on the agreed schedule.
In retrospect, Mr. Richey says he should have done more due diligence before signing the franchise agreement.
“I didn’t look at it in terms of what things could go bad, because I never thought things could go bad,” he says.
Like Mr. Richey, many people buy franchises thinking they’re a carefree alternative to starting a business from scratch. But while a franchise can indeed include fewer uncertainties, there are also big risks.
Franchisees rely heavily on the franchiser for support, training and information — and things can get testy or downright nasty if the franchise isn’t as lucrative as expected or promised.
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