Franchising Up: Franchising Down and Dangerous

SYDNEY, AUSTRALIA - This article considers what BMM readers seem to agree are critical and universal dangers in franchising and especially at a time when confidence is down.

Franchising under pressure - SmartCompany.com.au

Jacqui Walker - lawyer, journalist/editor:

‘Whether franchisors can maintain profitability without fee gouging from struggling franchisees, or cutting and thereby compromising services to franchisees, is a question that must be asked by the industry - particularly with all the newly-unemployed likely to consider franchising as their next career move.

Some observers believe there is a strong risk that some franchisors won't be able to resist the temptation to sell franchises to anybody with a purse and a pulse, just to raise cash and keep themselves afloat.'

DC Strategy's McFedries warns:

‘While rising unemployment will create a deeper pool of potential franchisees, the experts agree it is a short term strategy that will only prolong the agony for the struggling business.

"Franchisors who go out and sell more franchises as a response to a slowdown in sales may as well hand their administration papers in now.'

Frank Zumbo, associate professor of business law:

‘I'm concerned about franchising because there is a significant number of marginal operators that expanded too quickly on cheap credit.'

"It has a devastating effect when a franchisor fails." 

The subject of franchisor collapse and the effects on franchisees is topical in the current trend of failures, however it must be remembered that under present law and regulation franchisees don't need a franchisor to fail for them to end up bankrupt.