25 Worst Franchises to Buy

Posted Sat, 2009/01/24 - 07:35 by Mr. Blue MauMau

KY sub shop. Photo/Blue MauMau

LEXINGTON, Ky. (Blue MauMau) - Sub shops, car care and quick printers dominate the list of worst franchises to buy, according to a Small Business Administration list given to lenders.

Blue MauMau once again gained access to this banking list and is publishing it to help inform franchise investment decisions. Taken straight from an SBA's loan performance list covering the years from 2000 to 2007, this is the list that the agency provides loan officers of its most trusted lenders and banks throughout the country.

This is how the list is used. It is a quick filter of loan risk, of what franchise brands to navigate around and what looks less risky. For example, with a 48% failure rate on SBA loans, Mr. Goodcents Sub has the dubious honor of being at the top of worst investments. Compare the 48% to another sub chain, Subway's, which had only 4% failures out of 1,974 disbursed loans.

The good news for Quiznos is that it didn't make the worst 25 list. However, it was #26, worthy of a dishonorable mention. Blimpie, a sub maker that belongs to Kahala Corp's group of franchising firms, ranked considerably worse at #5.

The loan officer and the franchise buyer realize that there are thousands of franchise opportunities to buy from, so why mess with the riskiest? Unless there is a miraculous reason why concepts with high failure rates are a great investment, the franchise buyer may want to move to other brands with lower failure rates.

Each franchise brand listed has Small Business Association loans with at least 51 disbursements, a substantial number. Having larger figures for the disbursement of loans filters out most of the small franchise systems. What is left is largely major franchise brands with the worst failure rates of nearly 115 big brand concepts.

These are the worst franchise brands, where franchise owners struggled more than others to pay back their SBA loans. To put it another way, this group is the lowest performing quintile (20%) by loan failure rate of major franchise brands in the SBA list.

So here it is: The list of 25 of the worst franchise investments, ranked from worst to bad, from the viewpoint of being a lender of SBA loans and wanting to ensure the best chance of having the loan repaid by franchisee borrowers.

FRANCHISE BRAND	Disburse #	Disburse $	Failure %	Chgoff %
1. MR. GOODCENTS SUB' AND PASTA	52	$6,935	48%	13%
2. ALL TUNE AND LUBE	77	$8,523	48%	14%
3. PHILLY CONNECTION	63	$7,755	48%	20%
4. COTTMAN TRANSMISSION	163	$20,582	46%	14%
5. BLIMPIE	158	$26,208	37%	13%
6. CORNWELL QUALITY TOOL COMPANY,INC	53	$3,217	36%	9%
7. GOLF ETC.	67	$9,362	36%	12%
8. KABLOOM	52	$7,455	31%	7%
9. MATCO TOOLS (RENT TOOLS)	316	$29,630	30%	9%
10. ATLANTA BREAD COMPANY	61	$32,979	30%	9%
11. CARVEL ICE CREAM	76	$16,757	26%	2%
12. TCBY	52	$6,675	23%	9%
13. FAST FRAME	68	$7,050	22%	8%
14. GYMBOREE	51	$6,427	22%	7%
15. BEEF O'BRADY'S	81	$26,924	21%	2%
16. MEINEKE DISCOUNT MUFFLER	184	$49,512	21%	3%
17. MINUTEMAN PRESS	168	$24,935	20%	5%
18. ALPHAGRAPHICS	72	$23,127	18%	6%
19. TACO DEL MAR	62	$8,935	18%	6%
20. POSTNET	92	$9,893	17%	4%
21. MARBLE SLAB CREAMERY	144	$30,585	17%	3%
22. FOX'S PIZZA DEN	76	$5,411	17%	3%
23. SIR SPEEDY PRINTING CENTER	51	$15,465	16%	3%
24. PETLAND	85	$40,054	15%	5%
25. PLAY IT AGAIN SPORTS (RETAIL SPORTS)	53	$8,268	15%	3%
26, Dishonorable Mention: QUIZNOS	1,802	$266,732	14%	3%

Explanation: This is ONLY a list of franchises that have received SBA loans. It does not account for conventional, non-SBA loans. Banks aren't about to release their conventional loan statistics anytime soon. The Small Business Administration notes that the failure rate equals the number of liquidation plus number charged off divided by total number disbursed. The disbursement dollars are for the total amount of loans disbursed x $1,000. Franchise networks that have received less than 10 disbursements (small business loans) have been taken out to leave a list of some 460+ franchise systems from 2000 to 2007.

It's not our intent to just ding. Blue MauMau will shortly release the best franchises to buy -- this time strictly sorted by major franchise brands with the lowest failure rate list from the SBA.

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38 Comments

EmbroidMe by Guest

Submitted by Guest on Thu, 2009/09/24 - 16:39.

EmbroidMe should be somewhere at the top of this list. EmbroidMe franchises suffer a 40% - 60% failure rate. This includes stores that have shut down, resold or never turned a profit, even after 5 years in the business.

Buyer beware.

If you're considering buying one, call 100 EmbroidMe owners and ask them 2 questions:

1) How long have you been in business, and have you turned a profit?
2) Are you the original owner of your store?

Enough said.

Snap Fitness - Why it will not make this list...Spin Fitness by Guest

Submitted by Guest on Thu, 2009/12/03 - 02:22.

Snap Fitness seems to have a high percentage of dissatisfied franchisees but Peter and his entourage were smart in initially requiring personal assets/worth around $200,000 - $250,000 for each franchise license purchased. This insured all franchisees would "linger" around and "slowly" bleed away these assets until they could sell or bail! Snap Corporate could continue to collect their fees and build their wealth since there is no realistic recourse for franchisees. The information below is typical of the rhetoric used to entice potential franchisees into investing. You do the MATH!

Please read this article/press release carefully. The excerpts below it will be used for calculating SNAP SPIN.

http://twincities.bizjournals.com/twincities/stories/2009/10/26/focus1.html

"with about 250 members paying roughly $35 a month." "2008 revenue: $31,716,000" "The company has roughly 1,000 clubs open in 48 states, Canada, Mexico and India."

Snap Fitness Actual Reported 2008 Revenue - $31,716,000, Roughly 1,000 Clubs, Annual Revenue per Club = $31,716

Snap SPIN Revenue - Typical club has 250 members paying roughly $35 month, $35 x 12 = $420 annual dues per member, $420 annual dues x 250 members = $105,000, Annual Revenue per Club - $105,000

SPIN FITNESS DIFFERENCE: $105,000 - $31,716 = $73,284

Just for fun, lets say there were only 500 clubs with the same stated 2008 revenue instead of 1,000. The Annual Revenue per Club would be $63,432. SPIN FITNESS DIFFERENCE $105,000 - $63,432 = $41,568

ANY QUESTIONS?

ALL TUNE AND LUBE WORST FRANCHISE by Guest

Submitted by Guest on Tue, 2009/09/22 - 15:48.

THEY ARE NOT THE 2ND BUT THE WORST FRANCHISE TO BUY I DID AND WENT BANKRUPT, ALL THEY CARE IS HOW THEY CAN MAKE MONEY AND KEEP YOU CHARGING EVEN WHEN YOU ARE LOOSING HEAVILY. THEIR SUPPORT IS ZERO BUT THEY HAVE SOME OF THE SAVY, LYING SALES PEOPLE I HAVE EVER COME ACROSS.
DO NOT BUY THIS ROTTEN FRANCHISE UNLESS YOU ARE NUTS AND WANT TO LOOSE ALL YOUR MONEY

Meal Assembly by Guest

Submitted by Guest on Wed, 2009/05/06 - 10:32.

I know for a fact that most of the meal assembly franchisees use SBA loans to get started,in that particular industry (and I use the term loosely) the attrition and failure rate is close to 50%. Super Suppers has gone from over 270 stores to about 90. Dream Dinners from several hundred to about 100. Supper Thyme from 44 to 5, Entree Vous almost all closed, Pass Your Plate, Let's Dish the list goes on, most small companies are down to single digits, some franchisees who were able to survive the failure of the brand like Meal Makers, Dinners By Design and some Dinners Ready! have gone independent, most larger companies have losses of over 50%. Why are there no discussions about the failures by franchisees? I think because we are a group of people who feel responsible for our failure. But this is a faulty concept that had an identity crisis even before the powers that be started to "evolve" the relatively new concept. Thank goodness for sites like this, franchisepick, unhappyfranchisee and especially mealassemblywatch to get the meal assembly story out there

Quiznos 14% SBA Failure Rate = more layoffs by Guest

Submitted by Guest on Sat, 2009/05/02 - 09:33.

Last I heard is that in order to improve the relations with FO's across the country and to improve their profitability, Quiznos has fired ALL their Franchise Business Leaders across the country and are bringing "some" back in a different role.. They are the ones that were the ONLY direct link from FO's to corporate. I'm SURE this will help *laughing*. Quiznos has the foul smell of Rick Shaden already...and it's only going to get worse.

Q's Poor Success Tied To Greed by Guest

Submitted by Guest on Sat, 2009/05/02 - 21:51.

The reason there are so many defaults and so many unhappy Quiznos' franchisees is that Q's business model is based on sales to franchisees. Q owns the restaurant supplier and builds in a big profit margin on every item and service sold to franchisees. Add the kickbacks from vendors and you have (p)Rick's primary source of income and the primary complaint of franchisees. The cost of doing business as a Quiznos is too high. That means every giveaway, every buy one get one, every $5 sub is a big money maker for corporate and a total loser for franchisees. If (p)Rick wants to increase revenue he either unveils another "promotion", increases the price of food and/or supplies, or buys cheaper product and keeps the price to franchisees the same. That's what he's done with the ham and the turkey. And believe it or not Schaden managed to raise the price and lower the quality of our chicken. Yeah, it sounds smart until you realize that more than 1,000 Q's have closed and restaurant revenues on average are down 30%. With the number of those interested in openning a Quiznos near 0 (p)Rick has killed the golden goose. Now he'll do what he did at 123Fitness - suck the corporation dry and (in this case try to) walk away.

Many of the 123 Fit zees have been through hell by Barbara Jorgensen

Submitted by Barbara Jorgensen on Sat, 2009/05/02 - 22:24.

The stories about Quiznos and 123 Fit are similar. If it weren't for BMM I don't think many of us would of understood what happened. Thank God 123 Fit didn't grow to be as big as Quiznos. Many more thousands would of been hurt.

If everyone understood that the UFOC/FDD is set up for them to win no matter what happens to the zee I am sure none of us would of signed. Like Paul Stienberg says in his book they set up a great illusion. Unfortunately the illusion turned into a real nightmare.

Rick has not killed the golden goose. He became very wealthy killing people like you and me. Rick is set for life. Rick killed our golden goose which was our hard work and sacrafice. Our money became his. The UFOC is set up if we fail they can still come after you for royalties for the duration of the contract. That is why many zees have no other choice but to go bankrupt. After a lifetime of fantastic credit and the ability to live a comfortable life is stripped away, it is heart wrenching.

This is the consequences of doing business with people like Quiznos. I have talked to many of the 123 Fit people. Working until they die, divorces, loosing homes, going bankrupt, having to start all over at age 65, widows loosing money from the money their deceased husbands left them, depression, never being able to help your children through college, not being able to afford having your grandchildren over because you can't feed them. Not being able to do anything. Not being able to have heat if you live in cold weather. The list is endless. We can be greatful there hasn't been any suicides in 123 fit. I can honestly say I have talked to one that has thought about it. I talked to him for an hour. This is what makes me furious. They are messing with people's lives and emotional well being. They do not care about people, all they want is your money.

What about Sona Med Spa? by Guest

Submitted by Guest on Fri, 2009/05/01 - 17:10.

Jim Amos and his daughter Heather rose ran this franchise chain and I believe some of the franchisees did get SBA loans? In that case 37 franchises out of 45 who started at one time or another did fail. In my books that is an 82% + failure rate and would qualify them as numbe 1!!!!

Comment Moved by Barbara Jorgensen

Submitted by Barbara Jorgensen on Sat, 2009/05/02 - 03:14.

This comment is off topic and has been moved here.

SBA Top Failure Rates of Major Chains Must Have 50 by Mr. Blue MauMau

Submitted by Mr. Blue MauMau on Sat, 2009/05/02 - 07:48.

In order to qualify for the list above of worst major chains, a franchise chain must have at least 50 disbursed loans that are SBA-guaranteed. Sona Medspa doesn't qualify. In the original failure rate list, the SBA begins putting the failure rates on its list when there are 10 SBA-backed loans given out to a franchise brand. This practice prevents bad statistics. For example, can you imagine if a small chain had one disbursement and one failure. That would give a false impression of 100% failure. Or what would happen if there are actually no loan disbursements but there is a false statistic of one failure to pay? That would falsely make a whole chain have an infinite failure rate. Sona Medspa is not on the SBA list. One last point: The failure rate of franchisees to pay back SBA loans is very different than a system's franchise failure rate. They are not equivalent. The point of using this list is not so much to look at the failure percentage but rather to think as a banker and ask why one concept in a particular sector has very high failure rates compared to its competitors.

Compare against "fast track" by Guest

Submitted by Guest on Sat, 2009/05/02 - 08:25.

It would be interesting to compare this list against the "SBA Fast Track" list of years past.

Mr. Blue MauMau, Can you add by Guest

Submitted by Guest on Thu, 2009/01/29 - 18:37.

Mr. Blue MauMau, Can you add a little more clarity to this data? Specifically anything the authors of the report use to define "failure" and "charge off." For example, looking at #1 on this list (MR. GOODCENTS SUB' AND PASTA) is this saying that about 25 loans (48% failure) have not and will not be repaid? And that $901,550 (13% charge off) is uncollectible by the lenders? I have been told by someone that "failure" includes any loans that were actually paid off prior to maturity. Seems odd, but is that possible? It would certainly change my interpretation of this data.

Geeks On Call - missing from list? by Guest

Submitted by Guest on Wed, 2009/01/28 - 09:43.

As someone close to Geeks On Call, I am surprised that they are not on the list. There is a greater number of former franchisees than current franchisees. Most 'failed' franchisees sold their franchises back to the franchisor for $1 which hides the true failure count. Their system has very serious shortcomings: no brand identity, royalty is very high at 11%, advertising is ineffective or non-existent. Smaller franchisee survive by depending on business from outside of their area. Area developers have all but disappeared with the two largest just going chapter 11 recently. The franchisor's recent activities has been to replace failed franchises with company stores which has met with very poor results. Compound this with a series of law suits brought by franchisees who contend that the franchise no longer exists. What's left? A short history of a promising business that failed to reach maturity. Beware of Geeks offering franchises.

Re: Geeks On Call by Guest

Submitted by Guest on Wed, 2009/01/28 - 20:08.

Geeks On Call only had an 8% failure rate to pay back their loans. That puts it way under the worst.

Re: 25 Worst Franchises to Buy by Guest

Submitted by Guest on Tue, 2009/01/27 - 21:52.

very informative article for those considering another franchise or those currently in a franchise wondering what's wrong with their management skills, thanks for the article guys

Cottman Decline by Mr. Blue MauMau

Submitted by Mr. Blue MauMau on Sun, 2009/01/25 - 19:22.

Someone with close ties to Cottman franchises wrote and gave me permission to share this inside insight about a franchise system that is ranked fourth on the 25 Worst Franchises to Buy.

I understand that Cottman no longer sells franchises because of the SBA loan experience, specifically SBA will no longer provide a guarantee for Cottman franchise loans. Because of such high failure experience the life blood for Cottman was the sale of new and churned locations. It seems more than a coincidence that AAMCO became available to Cottman about the same time. Cottman's majority equity owner, American Capital Strategies, formed American Driveline Systems to own Cottman and aquire AAMCO. Since that time Cottman no longer sells Cottman franchises and has worked very hard to convert Cottman locations to AAMCO.
There is a group of some 100+ Cottman locations that choose to remain Cottman in the face of declining franchisor support and declining group advertising funds. For instance they could no longer afford the Terry Bradshaw connection started around 2003 or 4 and so it was cancelled in the past few months.
The leadership that produced the Cottman experience is in place at American Driveline managing a comingled organization that has a poor and some say deteriorating relationship with its franchisees.

Cottman Franchisees by michael webster

Submitted by michael webster on Tue, 2009/01/27 - 21:57.

Probably be a good time for some action by their IndFA, such as getting one, and planning a business agenda.

Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"

AAMCO and/or BUST by Ray Borradale

Submitted by Ray Borradale on Wed, 2009/01/28 - 04:15.

"and has worked very hard to convert Cottman locations to AAMCO."

Typically any conversion to AAMCO will be a major cost to the franchisees.

Were there 'red flags' to suggest that the franchisor would rip the rug from under them? This is one of those rotten situations where most would not have had a chance to find out through due diligence that this might happen.

Reality check for everyone else - this isn't the first time and it won't be the last - it is always a possibility.

There are 5 choices of action for these franchisees;

accept that they are stuck with the franchisor that just screwed them and convert,
don't; and the franchisor will deliver on nothing until they do convert or fail,
seriously activate a bankrolled IndFA [which will incurr a whole new set of pain], and/or
get a lawyer knowing that the contract has them screwed anyway, or
get some better advice than mine ... here .... hopefully.

The more things change; the more they stay the same.

Question about the Picture by MeToo

Submitted by MeToo on Sun, 2009/01/25 - 18:44.

Is this a photo of a Quiznos with the "Under New Management" sign out front? Or, is this a photo of an "Under New Management" sign transposed onto a shot of a Quiznos?

Quiznos Under New Management by Guest

Submitted by Guest on Mon, 2009/01/26 - 17:55.

No idiot. This is a sign outside Quiznos corporate office in Denver. They have and always will be under new management because nobody they bring in can turn this company around as long as Schaden is still involved.

Re: Picture by Mr. Blue MauMau

Submitted by Mr. Blue MauMau on Sun, 2009/01/25 - 19:07.

Photographer's note (me): The photo is real. The banner has not been transposed in. I'm not that good with PhotoShop software. This photo was the only one in my limited stock that had an "under new management" banner so it seemed like a good fit for this story. I managed to also get some photos of Cottman and tried visiting an All Tune & Lube in hopes of taking a few photos. The All Tune garage was gone, replaced by a Meineke. So there were no photos to be taken. A photo of a Cottman transmission sign was originally featured on this article.

Re: Picture by MeToo

Submitted by MeToo on Sun, 2009/01/25 - 20:12.

I wondered because the sign is not the sign that comes in the current marketing materials for a transfer. The FO probably just had one made locally. Thanks for the follow up!

The Q Way by Guest

Submitted by Guest on Mon, 2009/01/26 - 16:03.

C'mon. You thought Mr. Blue Mau Mau photoshopped the photo. Those who make their money scamming others believe everyone does business the same way.

Re: The Q Way by MeToo

Submitted by MeToo on Mon, 2009/01/26 - 17:10.

Wow - that's quite a judgemental response to a simple question. Considering you do not know me, nor to you know my background or manner of doing business, I would caution you on making such snap judgements. People don't always think the way that you assume they do.

Business Etiquette by Guest

Submitted by Guest on Mon, 2009/01/26 - 20:39.

Given the posts I'd suggest you do business the Quiznos way, down and dirty, with no regards for those you've q-screwed. From Quiznos and its vendors there's no such thing as a square deal, a fair deal, or a new deal. Just a raw deal.

The Q Way by Guest

Submitted by Guest on Mon, 2009/01/26 - 17:42.

Simple question, sinister motive. Who else but a Qtard would know, or care, whether the sign comes from Quiznos' "current marketing materials for a transfer"? You people are pathetic. If the original poster doesn't stand by his/her statement I will.

FYI by Guest

Submitted by Guest on Sat, 2009/01/24 - 18:30.

There are no more Cottman's being sold so the default rating is skewed. The company is transitioning most existing centers to AAMCO which they also own and not selling any new ones.

Don, good job, but obviously just the tip of the iceberg by Nick Bibby

Submitted by Nick Bibby on Sat, 2009/01/24 - 13:40.

Most readers understand a key dynamic in this story, but for those starting out, realize that the above list is created via default stats associated with the SBA. My guess is that we could beat the top ten on the list 100 times over if information was available on privately funded operations. What neophyte investors must understand is that MOST franchises, for various reasons, are poor choices. Nick Bibby is an international franchise consultant and a program developer dedicated to excellence in entrepreneurship.

Nick Bibby founded BibbyGroup.com, an organization dedicated to franchise and entrepreneurial excellence.

SBA Tip by Mr. Blue MauMau

Submitted by Mr. Blue MauMau on Sun, 2009/01/25 - 12:35.

Notice how the high failure rates drop significantly from the worst of the list to just the bad. #25 has a third of the failure rate that each of the top four have. That's an encouraging sign.

Re: 25 Worst Franchises to Buy by Guest

Submitted by Guest on Sat, 2009/01/24 - 12:10.

Does anyone else find it funny this morning that Cottman Transmission is number 4 on this list of "worst franchises," yet they have a giant ad across the top of the page? I guess the banner is supposed to catch those people that don't actually read the story.

Re: the Cottman banner by Nick Bibby

Submitted by Nick Bibby on Sat, 2009/01/24 - 13:39.

Please, Guest, the banner is a header to the story, not an ad. (See the print under the image.) Nick Bibby is an international franchise consultant and a program developer dedicated to excellence in entrepreneurship.

Nick Bibby founded BibbyGroup.com, an organization dedicated to franchise and entrepreneurial excellence.

Re: 25 Worst Franchises to Buy by Guest

Submitted by Guest on Sat, 2009/01/24 - 12:05.

It would be helpful to provide a link to the original source document(s).

You're on the Internet Now by Lenny Kleinrock

Submitted by Lenny Kleinrock on Sun, 2009/01/25 - 13:18.

Hello. Click on the hyperlinks to see the documents and spreadsheets with the full data. Those are the text that are not in the normal black font but in blue. Welcome to the Internet.

Re: You're on the Internet Now by Guest

Submitted by Guest on Thu, 2009/01/29 - 18:01.

Did you actually read his question or do you simply post snarky comments everywhere. I would also like a link to the ORIGINAL source document to ascertain the validity of the information myself, including any footnotes, etc. provided by the authors. For government-generated data, paid for by my tax dollars, I would expect this to be on the SBA's Web site. This article implies that the ORIGINAL document(s) are not available to the public, but it doesn't really say that.

Expectation and reality by Guest

Submitted by Guest on Thu, 2009/01/29 - 18:33.

Please read the first link in the related reading to help you understand and answer your basic questions about the list - SBA's List of Franchise Loan Performance, a Tip Sheet at the Races.

Quiznos Working To Improve Latest Ranking by Guest

Submitted by Guest on Sat, 2009/01/24 - 08:16.

I'm sure when the The Dicks see Q's ranking they will work even harder to improve it. As a former franchisee I can assure the readers on Blue Mau Mau that they're always schemeing for new ways to rip-off franchisees and that they won't be satisfied until Quiznos is where it belongs, #1 on the Worst Franchise To Buy list.

GREAT BLOG DON by Barbara Jorgensen

Submitted by Barbara Jorgensen on Sat, 2009/01/24 - 11:34.

Very informative. Some I never heard of. I knew that Blimpies was way up there. I see Taco Del Mar is #19. I am surprized not to see more fitness businesses on the list. I am also surprized to see Quiznos ranking 26th.

Quiznos Ranking by Current Q Franchise

Submitted by Current Q Franchise on Thu, 2009/01/29 - 22:01.

Do not worry about Quiznos ranking. They are working hard ( Day And Night) to be on # 1 worst franchisee to Buy.

25 Worst Franchises to Buy

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