Having spent a huge amount of time recently looking into Franchises, one question that always intrigues me is who records franchise failure rates?

One of the common myths about franchises is that they are a ‘proven business model’ and therefore have statistically higher succes rates.

After doing considerable research I would tend to disagree. There are many reasons why this is a myth and some of the main ones are:

• Most franchise businesses operate under a seperate legal entity i.e corporation, sole trader and trade as the franchise. If there is a failure then it is the legal entity that closes down. This just gets recorded, if at all, as a standard business failure.

• Unsuccesful franchises are generally financially tied into the contract for the term of the agreement i.e 5 years. If they wish to leave prior to that then they can be liable for the full fees they would have paid over the franchise terms. Many franchisees are happy to sign non disclosure agreements with the Franchise to just be released from their ongoing commitments and walk away.

•  Mnay franchisees just get to the stage where they ‘close the doors’ and walk away and want no more part of it.

What I really want to know is what statistical evidence is there to prove that franchises have a higher success rate?  In an industry that is strongly focused on threatening lawsuits for saying anything negative about a franchise who would ever get to know the truth?

www.businessfranchiseinformation.com

I have been reading a lot of different articles recently in preparation for a book on Franchising that I am writing —-  www.businessfranchiseinformation.com/course . What strikes me on nearly every single one is that early on the term franchising is described as something like ‘ a way of buying into a proven, tried and tested business’.

Sometimes this is true but in many cases this just perpetuates an industry myth.

Did you realise that it is possible to get a franchise up and running without ever really proving any success of the model?

Even under the guidance of many of the stringent Franchise regulatory bodies it is possible to launch a Franchise and be accredited after a limited ‘pilot test’. That pilot test can be as little as a few short months. There are very few checks on the level of success of the pilot or to assess if the ’system’ is replicable. It doesn’t even need to be profitable.

If you are considering a Franchise then don’t just assume that the model works. Question everything!!

www.businessfranchiseinformation.com