Reasons leading to the bankruptcy of a franchise

Franchising has become the most dynamic method of business development. But, like any other investment, purchasing a franchise is no absolute guarantee of success.  Not everyone knows how to successfully operate a franchise. If you do not know how to run a franchise, you go bankrupt sooner than you think.

Talk to franchisees that are already part of the system to find out opinions about the franchise. To understand why most franchises go bankrupt can help you ask the right questions. Knowing this information, it will be easy to assess whether a franchise will be productive or not.

Here are some of the most common reasons why a franchise can go bankrupt, followed by some questions for potential franchisees.
Lack of demand product or service can be caused by franchise location in a given territory.

In some cases, franchisees may be located too close to each other, making it into position to compete directly for the same clients. Make sure you ask the franchisor on how the territory will be divided. Ask if franchisees operating territory is large enough so that the opportunity to develop new units in a given territory, for a certain period of time.

Also, ask them if they are satisfied with the way the territory was divided. Make sure you or your accountant that you balance employee calculate the capital required, and do an analysis of income. Ask the franchisor if he runs the franchise has done financial expectations.

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