There is a franchise in my local area that I've been looking at. It seems to have been up for sale multiple times and owners seem to change frequently. The price is quite low as a result of this. Is there anything I should be concerned about?
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Answer by LegalEagle™ Staff, Melbourne 3000 VIC
- Yes. Situations like this should ring alarm bells for potential franchisees.
- The fact that multiple owners have been through the franchise in a short period of time suggests that it is not so much their skills and expertise that are letting them down but a problem with the viability of the business itself.
- This could be an example of what is referred to as 'churning'. Churning refers to the repeated selling of a franchise despite the franchisor being aware that the site or location is unlikely to achieve success either due to:
- its location;
- marketability;
- too much competition; or
- many other factors.
- If this is occurring it can raise doubt over the legitimate intentions of the franchisor.
- You should make thorough legal and financial investigations before considering the purchase of such a franchise regardless of how 'cheap' it appears to be.