Franchising Drops 20% in Q1

Franchisors are cutting back on efforts to sell franchises. As evidence, states who have laws that franchisors must register disclosure documents before they begin selling franchises say that registrations have dropped in just the first quarter of this year at numbers hovering around 20%.

Annual applications from franchisers who want to do business in Maryland are down significantly so far this year, says Dale Cantone, an assistant attorney general for the state. First-quarter franchise-registration applications in Maryland fell 16% from a year earlier to 367.

Other states report similar falloffs. For instance, California's filings from Jan. 1 through its April 20 deadline fell nearly 20% from a year earlier to 769. New York's first-quarter registrations dropped 22% to 348 -- the lowest number in five years.

Attorneys who process state registrations confirm the pattern. - The Wall Street Journal

It's not just the growing kid on the block who is shrinking. The old adults are shrinking too. Existing franchisors who get around the disclosure document rules by having a 'Big Boy" exemption because they manage to show sizeably more assets than liabilities, are increasingly losing their status.

Again, from the Journal:

"In Maryland, for instance, one established franchiser lost its exemption after the goodwill on its balance sheet shrank -- "an indication of the current economic conditions," the company told the state in a letter accompanying its application, according to Mr. Cantone [assistant attorney general for Maryland]. In North Dakota, a fast-food restaurant operator, a real-estate firm and a home-remodeling franchiser lost their exemption status this year and had to reregister, says Diane Lillis, franchise examiner in that state's securities department."