There are many factors that can cripple a great franchise system, but with most problems there is a solution. 

1. Significant level of disputes between franchisees and the franchisor

Franchisees talk, so if you’re hearing on the grapevine that franchise operators are taking the franchisor to court, there may be some issues with the system.

2. The brand is subject to frequent ACCC action

If the Australian Competition and Consumer Commission is constantly picking up your chosen franchisor for misconduct, there may be cracks in the system.

3. Poor level of franchisee retention

If a large number of franchisees are wanting to get out of the business after a few months, then the franchise could be broken. It may not sound like a big deal but most franchise terms are at least five years, and a high turnover of units could be a red flag.

4. Fees required for support not delivered

You may need to take off the rose-coloured glasses if you find franchisees are paying regular fees for a service such as marketing and not receiving the support paid for.

5. Ongoing capital investment is unreasonably high

The costs of ongoing capital investment is unrealistically high, and coupled with paid support not received, suggests that there could be issues in the supply chain.

6. Lack of head office response

If you can’t get hold of head office perhaps franchisees can’t either? Lack of response may mean this system is overworked or fragmented.

7. Excessive rents

Excessive rents that make return on investment near impossible in the face of competition could suggest the system is unstable.

8. Cannibalism

Not the Silence of the Lambs kind, but more related to saturating the area or territory with other franchised or company owned outlets to satisfy customer demand. Are they all making money? If this is an ongoing policy, it might prove to be a short-term gain.

But it’s not all gloom and doom                                                                                  

Although the above points taken together may indicate a broken franchise system, there are remedies. Often, it is a simple review of processes and policies or a head office restructure that can get the ship back to sailing the high seas.