24 Oct Recent Research on Franchise Sales
We have advocated (and still do) that the sale of franchises, both new and old, should be an important part of the sales within a business brokerage office. We have come up with some interesting information on franchises doing research for the 2014 Business Reference Guide and the BRG Online.
The last few years have taken their toll on existing franchises. Many of them have lost units or stayed about even, which means that they just sold enough new ones to offset the losses. In fairness, almost all franchises have their marginal units and they just can’t stay afloat in a difficult economy.
Almost all units and all franchises took a hit in sales during this period. We noticed that 2012 was a bad year for many, with the average sales for 2012 less than the average sales for 2011.
Here’s how we see it:
• The growth (and continued growth) of franchise sales may be overloading the marketplace. How many sandwich shops can an area support? There seem to be new ones every time you turn around.
• The SBA is eager to lend on the purchase of a franchise. They seem to assume that a loan is secure if the sale is of a new franchise – established or one that just started. We see ads for banks that brag that they just financed 25 new franchises for millions of dollars. They won’t all be successful.
• The SBA loans may be more than the new franchisee can handle.
• Not all franchise systems will work. However, we agree that established ones have their act together and success is based on “following the system.” We know from experience that not all new franchisees will follow the system.
• Not all systems or concepts will work over the long haul.
• No matter what the business is, or what someone will come up with, it will be franchised. We have listed in previous articles many franchises that we have never heard of – new ones seem to be popping up all over. It appears that every type of business or service has a franchise doing it.
Despite all the above, franchising is here to stay. Unfortunately, not all of them are here to stay.
We don’t think owning a franchise is for everybody. Many fail. However, right now there seems to be a surge in the growth of franchising. Business brokers are missing out on many opportunities by not adding the sale of them to their business.
We know of three or four new franchises created – believe it or not – to teach franchisees to sell new franchises. Better get on the bandwagon.
Our figures were based on listings in the Spring/Summer Franchise Opportunities Guide, a publication of the International Franchise Association (IFA). It is the largest franchise association in the country. If you are even thinking of selling franchises you need the Guide. They also have many other publications. Go to www.franchise.org for more information.
