15 Worst Franchises
EXCLUSIVE - Here are the worst 15 performing franchises in regard to having the highest Small Business Administration (SBA) loan failure rates. The list is dotted with sub sandwich shops, fitness centers and car shops.
| WORST FRANCHISE LOAN FAILURES | Failure % | |
| 1 | OBEE'S SOUP SALAD SUBS | 55.56% |
| 2 | LADY OF AMERICA | 41.94% |
| 3 | COUNTRY CLUTTER (BED & BREAKFAST) | 41.18% |
| 4 | COPY CLUB | 36.36% |
| 5 | ALL TUNE AND LUBE | 35.71% |
| 6 | PICKERMAN'S | 35.71% |
| 7 | PHILLY CONNECTION | 35.59% |
| 8 | ROLY POLY ROLLED SANDWICHES | 34.78% |
| 9 | COTTMAN TRANSMISSION | 34.48% |
| 10 | HAIR COLOR EXPRESS | 33.33% |
| 11 | LEE MYLES AUTOMOTIVE TRANSMISSIONS | 33.33% |
| 12 | GODFATHER'S PIZZA | 33.33% |
| 13 | SMOOTHIE FACTORY | 33.33% |
| 14 | BLIMPIE | 31.39% |
| 15 | GOLF U.S.A. (RETAIL GOLF EQUIP.) | 30.77% |
Source: Small Business Administration, SBA Loan Performance Within Franchise Code for the Period of FY 2001 - 2005
Blue MauMau was able to obtain this highly guarded document. It is a list that the SBA gives out to lenders to help them ascertain the business risk of various franchise systems. When a failure rate for paying back a loan is high, a banker typically requests additional capital injection from the would-be franchise owner -- even if the franchiser is listed on the franchise registry.
It should be noted that this is ONLY a list of franchises that have received SBA loans. It does not account for non-SBA loans. The SBA notes that the failure rate equals the number of liquidations, plus number charged off, divided by total number disbursed.
Franchise networks that have received less than 10 disbursements (small business loans) have been removed, leaving a list of some 365 franchise systems during the period of October 1, 2000 to September 30, 2005.
Here is Blue MauMau's failure rate tool
Readers can search these various franchise systems for failure rate, number of loans, and loan amount.
- Franchise topic:
When a failure rate for paying back a loan is high, a banker typically requests additional capital injection from the would-be franchise owner -- even if the franchiser is listed on the franchise registry.
Of the original list on this blog, was that failure rate an indication of worse things to come? After 3 ½ years have any strengthened?
Obee’s Soup Salad, Lady of America, Country Clutter, Copy Club, All Tune and Lube, Pickerman’s, Philly Connection, Roly Poly Rolled Sandwiches, Cottman Transmissions, Hair Color Express, Lee Myles Automotive Transmissions, Godfather’s Pizza, Smoothie Factory, Blimpie, and Golf U.S.A.
The more things change; the more they stay the same.
Cottman Transmisssion is no longer selling franchises, I believe, in part because SBA financing dried up based on non performing loan experience and their system shrunk from around 400 stores to around 100. If you bite on any of the Cottman lead generating stuff out there you will be redirected to AAMCO. The CEO at the helm of the explosive growth phase of Cottman through the implosive shrinking phase has moved on to a spa franchising business.
--
JimB
Golf USA is an abysmal failure. They try to get people to open stores in small towns so owners have better margins on the product with less competition. Problem is there are fewer buyers in small towns. Margins are very thin in the golf business if sticking with pro-line equipment so they tell the owners to direct people to the off-label or proprietary brands. In a higher end area customers want pro-line clubs. As a previous owner I was buying golf balls (wholesale) for more than Walmart was selling them for (retail). The inventory turns were much less than the franchisor alluded to. All the store really did was trade dollars on merchandise but after overhead is factored in (rent, salaries, equipment payments, royalty payments, etc.) nothing but losses occurred. Unless an operation has vast size a thin margin retail store is doomed to fail. All Golf USA wants is your $40,000 franchise fee and then they’re done with you. Tough lesson.
The only reason Snap Fitness has not yet made the top 15 list is due to their youthfulness and zip-lip non-disclosure agreement required for all owners and management. The Snap Fitness Business Model heavily favors the franchiser and squeezes the franchisees to the point of failure. Their statistics for locations closed are bouyed by the last minute giveaway fire sales by worn out, stressed out and financially ruined owners.
I highly recommend anyone interested in Snap Fitness to perform a thorough due diligence, including researching state, county and city laws, codes or regulations for requiring staff at all open times, requiring a CPR/AED certified employee on duty at all open times and requiring a tanning operator at all times the tanning is being used. These "minor details" have been overlooked by lots of franchisees and should ultimately be the responsibility of the franchisor.
For more specific information about this "Easily One of the Worst Franchises", go to "Anytime Fitness or Snap Fitness" forum on Blue MauMau. Truly, this opportunity is a real stinker!!!
Nice start but sure there are many others of us who could significantly expand this list.
Special offers on Professionalgloves
Good Point.Thanks for sharing.
it might be able to get rid of the list soon.
FiltaFry should also be on this list. They have more than a 50% failure rate!
Im interested in filta fry , can you tell me something if you know please
7. Krispy Kreme
8. Taco Del Mar- it seems they are doing things like Quznos
9. Tasti Delight - Good ole Amos and Heather Rose
10. Cuppy's- Although the new owners are trying to change things. Correct me if I am
wrong.
11. Supper Thyme
12 Butterfly Fitness
13. Contours Express
14. Ladies of America
15. Slender lady
16. Snap Fitness
17. Blimpies
18. Curves- (Encroachment problems.)
19. Dagwood Sanwiches.
20. Anytime Fitness
21. Going Postal
22. Mail Box Etc.
23. Subway- Unless you can afford more than one unit..
24. Candy Bouquet- How can I forget this one?
25. Sona Spa- Amos and Heather again.
I am sure I can come up with more. This is just from memory. Anyone wish to add more? Than we can start a list of good zors. Unfortunately the best franchises are out of reach for the average person. Unless someone can tell us of affordable ones I would appreciate it. Feel free to correct me if you think I am wrong.. .
Read some of the horror stories. My opinion is based on people's writing.
You are a salesman. Snap is a really sharp looking gym. I personally have looked inside a Snap. In a progressive area I am sure the rent is higher. Across the street is an Anytime Fitness. There is competition right off the bat. Snap requires no employees. In my opinion there should be someone there to always encourage people. That is why people join gyms because it helps to have someone evaluate their progress. People can work out at home alone.
Everytime I have looked into that Snap there is only a few people working out. This is scary because the cost of running a gym is unbelievable.
I could not sell gyms because the first important thing is my prospects main interest.
It is the business side that is important. Not if a gym looks fantastic.
To the zee wannabee:
Go to Caleasi and look at their FDD. If you don't understand it take it to a killer franchise lawyer. Once you understand the FDD maybe you will think twice. The FDD is the most important thing to understand. The consquences of failing is too stiff. (Ca.gov)
Here is a recent article from the Wall Street Journal on the subject:
http://online.wsj.com/article/SB121487808166918359.html
Anytime Fitness has had 1 failed loan out of 65.
Yes. Anytime Fitness comes up a winner in franchise owners being able to pay back their SBA loans. Surrounded by some fitness competitors that are big losers - and that's not a good thing, Anytime is obviously doing something right.
What is this company doing right?
--
dw
"I can add 'more worst franchises'"??? That headline of Do Diligence's is a great lead to show how much thought she put into the writing of her list.
The Truth Shall Set You Free!
TIF
The effort to compare the best and worst is to be applauded. In our SBA loan list, the difference between the best and worst is an objective metric of what percentage of SBA outstanding loans are paid back. We think the highest failure rates of paying back the loans is a barometer of the worst franchise systems. Lenders use this list as well to decide whom to give loans out to.
There are several things you can do to get the ball rolling. You could write an article on observations you have made on why you came up with your list of worst. (You must be a logged in member to write articles though.) It would be helpful to give us some parameters of what to look at and compare so that apples and apples can be compared. If you aren't sure, then you should use the public forum area and bubble up ideas on what to compare.
I think getting your hands on this document is very interesting. However, I don’t think it really provides the right type of insight to a potential franchise buyer. Yes, this shows business failures and loan defaults. However the real problem might be in the franchise sales practices of the listed companies.
Having worked with a lot of franchisor’s during the past 30 years, and even having created a lot of businesses from scratch, I can tell you that you can have or create the best business model but if you sell the franchise to the wrong type of person, i.e., with the wrong competencies; value systems and behavior, there are going to be lot’s of problems, many of which could end up in business failures.
Franchisees, for the most part, know very little about what they are good at or what type of business is best for them. Franchisor’s who aren’t careful or don’t really know what type of profile they should be looking for are really doing their own company a huge disservice, as we see in this list.
For example, one of our clients had an attrition rate as high as 60% before we came in with the Franchise Navigator. Their franchisees were not bad people. They just were not the right profile for the franchise model. They were sales people (Emulator/Influencers) and the model called for business people (Achiever/Accomplishers).
Business, as in life, is cause and effect. Most people and most franchisors live their lives in the effect – without realizing they are part of the cause.
As we see in this list, this is a horrible effect.
Craig Slavin
Franchise Architects
Franchise Navigator
Michael Webster PhD LLB Psychology of Compliance and Due Diligence Law www.bizop.ca
Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"
This is an interesting report. However, it is based solely on SBA Gauranteed loans and not necessarily indicative of the franchise concept. See more of my thoughts and how to interpret this type of data here.
Believe & Succeed,
FranSynergy
Synergizing Franchising 1 Franchisee at a time!
www.fransynergy.com
Believe & Succeed,
Dale
FranSynergy, Inc.
Synergizing Franchising!
www.fransynergy.com
It is not advised that someone should ONLY use the list and its numbers in their consideration to buy a franchise. The following is insightful.
It was noted that the list is limited to only SBA loans. Information on non-SBA loans are not known. Second, although the source is the Small Business Administration, the reader cannot know for certain how accurate the SBA data is. There is no mention of a third party audit certifying the accuracy of the information on the document. The list is simply one set of data among many that might be considered.
Don Sniegowski
Interesting report on franchisor failure and what the effect is on franchisees:
When the Franchisor Fails (pdf)
--Paul Steinberg, pwsteinberg@msn.com
How do we delete our own post? I had asked a question and then found the answer all of two minutes later. Tried to delete it but it only allowed me to delete the text, leaving a comment empty.
Lisha
Rhino Super Center
For those who may not be keeping up with the discussion on THE TABLE over at the FranSynergy Blog (Deal Killer?). I've been challenged by our esteemed colleague Dr. Webster to pick a FRANCHISOR from the list and PROVE why they remain a viable investment. I've selected BLIMPIE'S, and made my case. HOWEVER, I've also invited Mr. Mark A. Mears CMO for Blimpie's to respond.
Believe & Succeed,
FranSynergy
Synergizing Franchising 1 Franchisee at a time!
www.fransynergy.com
Believe & Succeed,
Dale
FranSynergy, Inc.
Synergizing Franchising!
www.fransynergy.com
Very intersting! Have any of these systems continued to grow? Do other franchise lenders share the same kind of information? Have you tried to obtain comments from Senior management, at each of these franchises, for explainations about these "failure" rates?
Our industry requires that we hold ourselves to a higher standard!
Dear Mr. Blue: Based on your experience...do you think this is the "tip of the iceberg"?
Jeff Johnson, FranSurvey.com
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There were people that had the document but didn't want to give out the information. Some SBA officers and bank lenders that were asked did not know. But after months of sniffing a paper trail, here it is.
Mr. Blue MauMau
Editor
Yes. The total number of disbursed loans is given so calculating the number of failed loans is simple (Total x Failed %). Those numbers are coming...
Mr. Blue MauMau
Interesting snapshot of franchisor failure in Australia. I'll keep it in mind if I get bored with the U.S. market. Any quote or data that you felt in particular applied to the U.S.? Actually, data on the seventh largest economy in the world, the State of California, would be even better.
Craig
Great idea, FranSynergy. The online franchise community would love to hear from Blimpie's CMO. Let me give the complete SBA row of information.
-don-
As a result of requesting Mark Mears to respond I found out that he is no longer CMO for Blimpie. I'm assuming that this came as a result of the recent acquisition of Blimpie by Kahala Corp. Therefore I've invited Kevin Blackwell CEO & Founder of Kahala to respond.
To make sure that we all are interpreting the data presented correctly. Is it your understanding that of the 1,600 Blimpie Franchise locations 137 (8.5%) have been funded by the SBA and that 31.39% or 43 of those failed? And that of those 43 which failed 9.06% or 4 were charged off by the SBA?
Believe & Succeed,
FranSynergy
Synergizing Franchising 1 Franchisee at a time!
www.fransynergy.com
Believe & Succeed,
Dale
FranSynergy, Inc.
Synergizing Franchising!
www.fransynergy.com