Common Franchise Mistakes to Avoid

Don’t let this be you – a frustrated entrepreneur regretting a franchising decision. New and aspiring Filipino entrepreneurs are often drawn to franchising by success stories and the allure of a proven brand

However, along with the franchise opportunities that promise quick business setup and brand recognition, come plenty of franchisee pitfalls that can turn your dream business into a nightmare.

In this guide, we’ll walk through the most common franchise mistakes people make when selecting a franchise – and how you can avoid them. By learning from these, you can choose a franchise wisely and set yourself up for success.

Skipping Due Diligence

One of the biggest mistakes is not doing your homework. It’s easy to get swayed by a friend’s recommendation or a trending food cart on social media, but failing to do due diligence can cost you big time.

This isn’t as simple as liking the product or the brand – you need to research everything about the franchise. That means digging into the franchisor’s track record, the market demand in your area, the level of support provided, and even speaking with existing franchisees.

Why it’s a pitfall: Without thorough research, you might end up with a franchise that doesn’t suit your market or goals. For example, a flashy milk tea franchise might seem like a hit, but if your area is already saturated with milk tea shops, you’ll struggle. Many new franchisees blindly trust the brand’s popularity and overlook local competition or consumer preferences.

Avoiding the mistake: Treat franchising like getting into a marriage – know your partner well! Check if the franchisor is a member of reputable associations (like the Philippine Franchise Association) and verify their business registration. Read up on franchise advantages and disadvantages to ensure franchising aligns with your personal and financial goals. Don’t hesitate to ask the franchisor tough questions and request documentation.

A good franchisor will appreciate your diligence. Also, reach out to current franchisees to get unfiltered feedback on their experiences – they can tell you what challenges to expect. Remember, franchisee pitfalls often start with a lack of information. The more you know, the better you can judge if a franchise is the right fit. For a step-by-step preparation, resources like how to start a franchise can guide you through the initial research stages.

Ignoring Franchise Red Flags

When excitement takes over, it’s easy to ignore the warning signs. Franchising red flags are those subtle (and not-so-subtle) signals that something might be off with the opportunity being offered. These can range from overly aggressive sales tactics to shoddy paperwork.

Common red flags to watch out for:

Unrealistic profit claims: Be wary if a franchisor guarantees you’ll earn your investment back in a few months or that you’ll make a huge profit with minimal effort. No one can guarantee success in business.

For instance, if someone promises “ROI in 6 months guaranteed,” that’s a big red flag – success depends on many factors like your effort, location, and market conditions, not just the franchisor’s brand.Reputable franchisors might share average figures or ranges, but they will always caveat that results vary.

Pressure to sign quickly: If you’re told an offer is “limited time only” or you feel rushed to pay the franchise fee immediately without ample time to review the contract, step back. High-pressure sales tactics have no place in legitimate franchising. A genuine franchisor will let you take your time to make an informed decision.
Lack of transparency: If the franchisor is cagey about providing details like full investment costs, franchisee responsibilities, or an operations manual, consider it a red flag. A solid franchise will have documentation – including an operations manual – and clear answers to your questions. In fact, not having a proper operations manual is a warning sign; a franchise system relies on consistency and training.
Bad reputation or unhappy franchisees: Do some sleuthing online. If you find many complaints, lawsuits, or news of franchisees unhappy with the support (or lack thereof), take notice. Don’t just rely on the franchisor’s hand-picked references. Try to find independent reviews or news.

In the Philippines, there have even been outright franchising scams targeting OFWs and newbies – the Department of Trade and Industry (DTI) has flagged certain bogus franchisors in the past. If an offer seems too good to be true (like unbelievably low fees or huge income with no work), it just might be a scam.

Avoiding the mistake: Keep your eyes open and trust your gut. If something feels off during the franchise discovery process, investigate further. It’s better to lose a “chance” than to invest in a problematic franchise. Ask the franchisor directly about any concerns – a reliable one will address them honestly, while a shady one might dodge the questions.

Talk to multiple franchisees if you can: if even one or two quietly hint at issues like “support isn’t as good as promised” or high hidden costs, consider it a caution. Franchise red flags exist to warn you – don’t ignore them. It’s often said that avoiding a bad franchise is just as important as finding a good one.

Underestimating the Total Costs

So you’ve got the franchise fee saved up – great! But don’t pop the champagne yet. One classic mistake is underestimating the capital needed to not only buy the franchise but also sustain it. New franchise owners sometimes focus only on the headline cost (say, the ₱300k franchise package) and forget about all the other expenses that creep in.

Costs new franchisees often overlook:

Build-out and renovations: Does your space need construction, furniture, or equipment? Setting up a store or kiosk often costs more than you’d expect. Those nice counters, signages, and kitchen equipment aren’t free – sometimes the franchise package covers some, but not always everything.
Permits and licenses: Especially in the Philippines, getting all the permits (mayor’s permit, BIR registration, etc.) can add up in fees.
Initial inventory and supplies: You’ll need to stock up on products or ingredients before you can sell. Often, franchises require you to buy from their approved suppliers which might be pricier than market rate.
Rent and deposits: Unless you own the location, you might need several months’ rent deposit up front. A prime spot in a mall or a busy street can be expensive, but going for a cheap, low-traffic location to save money is another mistake (a bad location can sink the business – location is king!).
Staff salaries and training: You may need to hire staff before opening and pay them during training. Plus, uniforms, etc., come into play.
Marketing and launch promotions: Many franchises expect you to do a grand opening promotion or local advertising. Who’s funding that? Likely you.
Ongoing royalties and fees: Beyond the one-time franchise fee, check the franchise agreement for royalties (usually a percentage of sales) and marketing contributions. These recurring fees can bite into your profits, especially in the early months when sales might be lower.

Avoiding the mistake: Make a comprehensive budget. When a franchisor tells you the investment “starts at ₱X”, ask for a breakdown of everything included – and not included. It’s wise to have at least 20-30% more capital than the bare minimum investment cost, as a buffer.

If the franchisor only mentions the franchise fee and glosses over working capital, you bring it up. A good practice is to have operating expenses (rent, salaries, utilities) set aside for at least 3 to 6 months of running the business, so you’re not struggling paycheck to paycheck (or rather, sale to sale).

Consider your funding options too. If you don’t have all the cash on hand, think about franchise financing – banks in the Philippines often have small business or franchise loan programs. In fact, banks may be more willing to lend to franchise businesses because of the proven model. but don’t take on debt lightly.

Whether you use savings, a loan, or help from an investor, ensure you’re not over-leveraging yourself. The key is to go in with eyes open about the financial commitment. It’s heartbreaking to see a promising franchise stall simply because the franchisee ran out of cash before the business became self-sustaining.

Misjudging the Franchise Agreement

The franchise agreement is that thick document full of legalese that many excited entrepreneurs skim over – huge mistake! This contract governs your entire business relationship with the franchisor, so you must understand what’s in it. Misjudging, or rather not fully grasping, the terms of the franchise agreement can lead to nasty surprises down the road.

Read every word before you sign – your success depends on knowing your rights and obligations. When you’re eager to start the business, a 50-page contract can seem daunting. Some franchisees sign without reading it fully, trusting that it’s “standard” or that the franchisor has their best interests at heart.

While most franchisors aren’t out to trick you, the contract will be written in favor of protecting the franchisor’s brand and interests. It’s your job to spot what that means for you.

Key things you might overlook (but shouldn’t):

Territory and competition: Does your franchise grant you an exclusive territory? If not, could the franchisor open another branch right near you or sell another franchise next door? Vague territorial rights are a common issue that can lead to conflicts later. Make sure you know how your area is defined.
Duration and renewal: How long does the franchise last, and what are the conditions (and fees) to renew? Many first-timers don’t realize that after, say, 5 years, they might have to pay a renewal fee and sign a new contract to continue operating.
Exit clauses: What if you need to sell or terminate early? The agreement will spell out if you can sell your franchise to someone else and any penalties for early termination. Not planning for an exit is a pitfall – life happens, and you might need an out.
Obligations for supplies and vendors: Most franchises require you to buy ingredients, equipment, or materials from the franchisor or approved suppliers. This can affect your costs. One franchisee learned too late that all packaging had to be bought from the head office at a premium price – eating into his margins. Know these requirements up front.
Training and support: What exactly is the franchisor obliged to provide in terms of training, support, and marketing? If it’s not written in the contract, don’t assume you’ll get it. Verbal promises mean nothing unless they’re added to the agreement. If a franchisor verbally promises to, say, give you extra staff on opening week or special marketing help, get it in writing or assume it won’t happen.
Fees, fees, fees: Besides the obvious royalty and marketing fees, check for others – technology fees, audit fees, renewal fees, etc. Some franchisees get surprised by an annual software licensing fee or required upgrades. These should all be outlined in the agreement.

Avoiding the mistake: Read the entire franchise agreement carefully – and preferably with a lawyer’s help. Yes, it might cost a bit to consult a franchise-savvy attorney, but that cost is nothing compared to the potential losses if you sign something you don’t understand.

An experienced franchise lawyer will point out any red flags or overly restrictive clauses. Don’t be afraid to ask the franchisor about parts that seem confusing or unfavorable. Some terms might be negotiable (to a degree), or at least you’ll get clarification. The bottom line is, know what you’re signing up for. The moment you sign that contract, you are bound by its terms, whether or not you understood them. Protect yourself by understanding your rights and obligations fully – it’s a lot easier to address concerns before signing than after.

Choosing Based on Hype Over Personal Fit

Another mistake aspiring franchisees make is selecting a franchise for the wrong reasons. Just because a brand is famous or a particular type of business is the “in” thing doesn’t mean it’s the right choice for you. Your lifestyle, interests, and skills matter in making a franchise successful.

Why this matters: Owning a franchise is a hands-on business, especially in the beginning. If you love the idea of being your own boss but hate cooking, buying a food franchise because it’s popular (think samgyupsal or milk tea craze) could spell trouble. You might find yourself dreading the daily grind of running that business.

Remember, as a franchisee, you’re not just an investor – you’re an owner-operator. One common franchisee pitfall is thinking any profitable business will do, regardless of your own passion or knowledge. The reality is, franchises run best when the owner is genuinely engaged and interested.

Many Filipinos jumped on the food cart bandwagon in recent years because it was trendy, only to realize later that it wasn’t a good match. For example, Juan de la Cruz (let’s call him) invested in a trendy foreign coffee shop franchise due to the hype. But Juan had zero experience in food service and was more of a morning person – running a café that required late-night operations and managing baristas overwhelmed him. He eventually sold the franchise at a loss. The lesson? Don’t choose a business you can’t see yourself happily running day in, day out.

Avoiding the mistake: Pick a franchise that aligns with your interests, values, and lifestyle. If you’re health-conscious and enjoy smoothies every day, a juice bar franchise might keep you motivated. Love kids? Maybe an education or tutoring franchise will be fulfilling.

Also, consider your schedule and family life. Some franchises (like restaurants or convenience stores) require you to work early mornings, late nights, or weekends. Are you up for that? If not, look for models with more regular hours.

When evaluating opportunities, picture a day in your life as the franchise owner – does it excite you or exhaust you? Ideally, you want a business you can be passionate about, because that enthusiasm will carry you through the challenges. Profit is important, but a franchise that fits you personally is more likely to prosper because you’ll pour your heart into it.

Expecting “Passive Income” from an Active Business

Franchising is often marketed as a turnkey solution – a business in a box. While it’s true that franchising gives you a proven system, believing that you can just invest money, sit back, and collect profits is a franchising red flag in your own mindset. A franchise is not a magic ATM; it’s a real business that demands time and effort.

Many first-time franchisees underestimate the work involved. Yes, you benefit from the franchisor’s brand, training, and support, but you still have to work hard and work smart. Thinking the franchise will run itself or that employees will handle everything while you golf all day is a recipe for disappointment. In fact, franchisors often prefer hands-on owners. They know the presence and dedication of the franchisee can make or break the outlet.

The reality check: In the early months (or year), you might be working longer hours than you did at your old job. You’ll be learning the ropes, supervising staff closely, dealing with customers, and ensuring the business runs according to the system.

Over time, as you gain experience and your team stabilizes, you might step back a bit – but even then, successful franchisees stay involved and keep a close eye on operations. If you treat it as an absentee investment, problems can snowball without you noticing, whether it’s declining service quality or employees slacking off.

Avoiding the mistake: Go in with the expectation that you are the driving force of this business. Be ready to lead by example – whether that’s flipping burgers during a rush or personally handling customer complaints to show your staff how it’s done.

Embrace the franchise’s system and standards rather than trying to reinvent the wheel on day one. (Another pitfall is thinking you know better than the franchisor and deviating from their established processes – resist that urge, at least until you truly understand the business and have a compelling reason to suggest changes.)

By being present and committed, you’ll also catch issues early and can work with your franchisor to solve them. Remember, a franchise is a partnership: they provide the brand and know-how, but you provide the hustle and local touch. When both sides hold up their end, that’s when a franchise really shines.

Set Yourself Up for Franchise Success

Choosing the right franchise involves a mix of head and heart. Do your homework, stay alert to franchise red flags, plan your finances conservatively, and make sure the business clicks with your lifestyle and passion. Avoiding these common franchising mistakes can dramatically increase your chances of joining the ranks of thriving franchise owners.

At the end of the day, franchising in the Philippines offers a pathway to business ownership with a safety net of support – but it’s not foolproof. It’s up to you to avoid the franchisee pitfalls that others have stumbled on.

Ready to take the next step? Equip yourself with knowledge and explore more resources on franchising to make an informed decision. Franchise PH is here to help you on your journey – check out our latest guides and franchise opportunities to find a business that fits you.

Remember, the goal is not just to buy a franchise, but to build a thriving enterprise. Here’s to smart choices and a prosperous franchising adventure ahead!