Risks change: Pre-sale due diligence does not

Just like entropy (going from order to disorder), things in business normally turn to shit.

Business risks increase (19 out of 20 times…) as the franchise agreement runs but your sunk costs keep you hooked up to a babe that’s turned into a wolf. Every half-baked new cash-grab scheme, you’re “All-in”.

But that does not stop the thought machine, sometimes run by “world class” CDN franchise bankers.

– Thanks: Wolves of Wednesday on ThisIsntHappinesss.com

3 Responses to Risks change: Pre-sale due diligence does not

  1. The problem is so much the sunk cost fallacy, but the onerous guarantees which force you to go all in all the time.

  2. Carol Cross says:

    Obviously, the banks and business media find it to their advantage to push franchisding and to obscure from prospective buyers of franchises the “known” high risk of investing in ANY franchised business because it serves their bottom lines. The BIG LIE that enables franchisors to sell their franchises to the public takes on new life in any new recession. (Good Article on the Big Lie in Franchise-Forum.com)

    Those thousands and thousands of failed “founding” franchisees whose life savings are sunk into these long-term “malicious” franchise agreements apparently cause no problems for the banks as long as these failed franchisees continue to pay on the original “startup” debt and the take-over franchisee continues to operate the business and feed the EBITDA’s of the franchisors and the banks and the lenders and, of course, continue to feed government job numbers and tax revenue.

    The government guarantees of small business loans do subsidize the franchisors and the banks even as “founding” franchisees flounder and fail at a rate of 50% sometime within the first five years. It is because of the invisible “churning” and “turning” of the assets of failed franchisees that franchising has become so visible and durable in local economies throughout the world.

    Long-term sustainability of small business operations that are franchised only becomes possible because the risk to the “founding” franchisee in terms of “churning” is hidden from view of new buyers in the sales process. Would there be new buyers who would assume this great risk if they really understood the risk?

    Again! because there are no valid statistics produced, the author of the article in Yahoo Business can deny that he has any knowledge of any high failure rate of franchised small businesses OR of any practice of “churning” and feels very safe in his comments on “due diligence” etc..and the encouragement to buy a franchise that he gives to prospective franchisees who might be reading the article.

    http://thegreatfranchisingrobbery.blogspot.com

  3. Ray Borradale says:

    I have a serious hunch that over the last 10 years we have seen a serious escalation in the sale of franchise brands.

    I have a serious hunch that every time every franchisee found out what that really meant after the sale. The more invested the more return required.

    Could that be over a long term or a short term? But we must never forget Shakespeare. http://www.spectacle.org/797/finkel.html

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