A recent Wall St. Journal article discussed some of the franchise brands with higher-than-average default rates. The highest on the list? Planet Beach at a considerable 41.1.% default rate for SBA loans from 2004 through 2014 according to the article.
The franchising industry and its model of business does a wonderful job of marketing itself. I hear all the time from prospective franchisees about wanting to be a part of a “system” that helps them with the sales and marketing and a business that has processes in place. Unfortunately all too often the supposed “system” is broken, out-dated or maybe never existed. I can assure you that if you are looking for a franchise don’t expect extensive help with the sales and marketing. There are very few franchises that can boast about its sales and marketing assistance for its franchisees. Believe me, if it is to be, it is definitely up to you Mr. or Ms. Prospective Franchisee. Just because you own a franchise does not mean you can sit back and watch sales automatically walk through the door which is sadly what I think some prospective franchisees think will happen.
Am I down on franchising? Not necessarily. I’ve seen it work for franchisees, particularly those with significant resources and multiple locations. What troubles me most is the lack of accountability on the part of many franchisors for the success of their franchisees. Instead of hitting franchisees with significant fees and royalties in times of trouble, why don’t more franchisors put their money where their mouth is by offering reductions in fees and royalties during tough times, or perhaps suspending those fees and royalties entirely? Or what about letting franchisees out of their contracts after losing their life savings rather than sticking the franchisees with claims for lost royalties and fees. Shouldn’t a franchisor bear some responsibility for the failure? In my experience some franchisors will work with franchisees in that regard but all too often franchisors are unwilling to provide any assistance whatsoever to the struggling franchisee.
If you are considering franchising as an option, be sure to do your homework. All franchises are not created equal. And be sure to read the Wall St. Journal article.