Selecting a Franchise: How to Weigh Complaints About a Franchise System

Although franchising can offer a proven a reliable path to successful business ownership, not all franchise concepts are created equal. When researching different franchise brands, candidates may come upon various complaints from other franchisees, whether it be through online reviews, validation calls or store visits. While it is important to gather as much information as possible during the due diligence process, franchisee prospects should understand how to weigh these complaints correctly when it comes time to make a final decision.

“Talking to existing franchisees can give prospects a real-life example of what to expect, as these are people who followed the model and have hopefully seen success,” said Franchise Captain founder Corey Elias. “Franchisees are also relatively unbiased — there is no financial incentive to lie. They will tell you how it is: the good, the bad and the ugly.”

But what if the bad seems to outweigh the good? If candidates continually hear negative feedback from existing franchise owners, it may be a sign to avoid moving forward, but Elias says it is important to remember that everyone’s experience with a franchise is going to be a little different.

“The process of choosing a franchise is extremely personal — is the concept right for me? If I talk to five franchisees and only one gives me a bad review, I’m not overly worried unless that person has a very similar situation and background,” said Elias. “If they are struggling because they don’t have a sales background, and I also don’t have a sales background, that could be a problem. Dig deeper — talk to other franchisees, focus on that sales background and figure out if it is really a problem.”

Charlie Bever, a senior franchise consultant with The Entrepreneur Authority, instructs all of his candidates to make at least five validation calls during the due diligence process. “That way you have a nice cross-section of opinions,” he said. “If you made five calls and all were negative this would be an obvious problem. It usually doesn't happen like that though. For every ‘bad’ call, the prospect likely receives four positive calls or reviews. Making validation calls is a crucial part of the investigative process.” 

One area where complaints should be weighed heavily is in Item 3 of the brand’s FDD, which outlines litigation. “If brands have litigation on the books, it can be a bad sign,” Elias said. “But it is also a matter of understanding why that litigation exists. If a brand is large with hundreds of units, they will likely end up with at least some litigation. It takes time and research to really dig in and understand if those instances are red flags or not.”

Additional issues that need to be considered are any bankruptcies, too many owners exiting the system and a lack of projected growth by state for the franchisor, Bever says. 

In terms of that projected growth, Elias says franchisee candidates should do their own research to determine whether complaints about the system line up with the overall health of the brand. “I always tell franchisees to look at Item 20 of the FDD — how many units have opened, how many closed,” he said. “If a brand is closing more units than they are opening, that could be a problem. Sometimes it can be explained, but franchisees want to join a system that people are already successful in.”

Bever says a weak financial performance or lack of a thorough financial performance representation (Item 19) could also suggest complaints about the system are valid. “If the data surrounding the items mentioned is negative, this may require deeper questioning of the franchisor,” said Bever. 

By understanding the gravity of certain complaints and the ways to dive deeper into concerns, candidates can be better prepared to analyze several franchise opportunities and discern which ones are well-positioned for success. Prospects should also enlist the help of professional franchise brokers and consultants, who can help them ask the right questions and get to the bottom of potential red flags.