It seems that way.
When franchisees fail, many other people take a hit, too.
Some of these externalized losses are:
- employees (wages, severance),
- customer prepaid deposits (goods & services),
- federal income & sales taxes,
- workers’ compensation payables,
- provincial sales tax remittances,
- electrical utilities,
- product and equipment suppliers,
- landlords,
- banks,
- relatives (love money), etc.
These over-and-above the direct devastation on the franchisees’ financial, relationship and physical health must reach into the multiple millions of $ every year.
Where’s the Beef?: In Canada, every young cow is tagged as they leave their herd of origin.
This is a very good thing because if you don’t track potential problems, you can never solve them.
Are Franchisees Tracked?: Nope: 0 per cent. Not one of 76,000: Anywhere.
No one (other than their franchisors) knows when a franchisee becomes ill and dies. They stay fairly tight-lipped about those numbers. Four of the provincial governments that have specific franchise laws, don’t care enough to compel the industry to track their own investors in any independent way. Same in the U.S.
No one cares about the health or sickness of 40% of retail sales. A Canadian industry with:
- 76,000 mostly family investors,
- 760,000 to 1,140,000 employees,
- $90 billion annual sales, and
- a staggering $3.8 – 15.2 billion invested (mostly franchisees’ $).
People and industries keep track and count what they value.
Once signed, your life holds no interest to any steakholder.
Other than the bankruptcy trustees.
FranchiseFool.com 
Yes! In the USA, the Department of Commerce, the home of The Federal Trade Commission, doesn’t track the failure of franchiSEES of the franchise systems — because, of course, it is only the survival of the franchise systems that is of concern to government. Is this a case of “ignorance is bliss” —even for government?
It appears that all research on Franchising in the USA has been turned over to a private corporation, Fran Data, who is the private contractor who is paid to run the SBA Loan Registry for the government. Fran Data also sells research information to the public and appears to be the only spokesman for the government concerning historical performance of franchise systems in our economy.
How convenient for government not to have to know thast 50% of retail franchisees will not make it beyond five years!
The “snapshots” of franchisors that are sold by Fran Data to t he investing public do NOT disclose all of the failed franchisees who continue to pay on startup debt for franchises that failed and that were given away in fire sales to second-generation franchisees. The “churning” process is therefore not visible to the public or the regulators or to investors in franchise systems because of the ineffective regulation that enables “churning.”
Apparently, the most important requisite for the SBA, beyond the 23 Items of Disclosure under the FTC Rule and the State FDD’s for listing on the SBA Franchise Registry is the actual franchise agreement (the binding contract) that contains legal language that will protect the franchisor from any claims by failed franchisees of fraudulent inducement/concealment in the sales process.
When all three branches of government cooperate in setting a trap for franchisees (a lesser species) who unknowingly buy high-risk and/or low-profitability franchises, franchisees are merely expendable resources for franchisors.
As you say, Les! “unsafe at any brand” –a “gamble” — and it is usually just “luck” if the franchisee is one of the 50% who stand for more than five years.
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Thanks as usual for your comments, Carol.
In Canada, Industry Canada won’t even release the information of the franchise loans that went sour. I requested the info and they blacked out all the franchisors’ names.
At least the SBA publishes the system names.
Les
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No doubt that governments deem franchisees are calculated and necessary sacrifices to the welfare of franchise systems because it is the franchise systems, no matter what the “churn” content may be, who feed the local economies and government revenues and job numbers.
It must be that the economists support the churning of franchisees as a means of somewhat overcoming the KNOWN high failure rate of all small business startup retail businesses because franchisors can survive on the flesh of failing and failed franchisees as long as the hard assets of the failures continue to serve the franchisor.
But, will the economists still condone churning of founding owner-builders of franchises if the fallout from this recession means that those franchisees who are just barely making it now will actually fail in these bad times?
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