As comprehensively covered within the last installment of the ongoing
VetLikeMe series on business and financing, the latest study and figures respecting franchise ownership are less than encouraging. http://vetlikeme.org/vetrepreneurs-and-vet-business-owners-continue-to-ignore-risks-and-realities/. SBA franchise loan failures were found to be one in six (covering only write offs after all borrower collateral has been liquidated). New Study (May 14, 2015) “Risky Business Franchisees’ High and Rising Risk of SBA Loan Failure”, http://wearemainst.com/new-study-one-in-six-franchise-loans-end-in-failure/.
The study did not cover nor did the figures include how many franchise businesses failed with bank loans (SBA back or otherwise) being satisfied in due course as part of some winding down process. The study did not cover failed loans where the SBA was never even contacted, all guarantees being paid or the bank simply “took the fall” for all or part of the loan debt. The study did not cover and did not report how many franchise firms got caught up in “pot holes” or extended detours that resulted in forced sales, mergers, or other type ownership endings/changeovers (where no losses resulted to the bank or SBA). Id.
Add in data and statistics from other sources, franchising prospects as an
attractive risk adversive ownership option hardly presents a glowing picture of promise.
For every 10 franchise units opened in the last three years, almost nine have closed. Kate Taylor, “Does the Franchise Industry Have a Turnover Problem?” Entrepreneur, October 17, 2014. http://www.entrepreneur.com/article/238653 and Erik Sherman, “Here’s The New Bad News About Franchises,” October 15, 2014. http://www.inc.com/erik-sherman/here-s-the-new-bad-news-about -franchises.html. A recent poll of U.S. franchisees by FranchiseGrade.com, commissioned by Labor Federation Change to Win, found most franchisees running at a loss or breaking even, with small salaries, substantial indebtedness and low satisfaction levels. See SBA, “Helpful Hints for Navigating the National Guaranty Purchase Center.” Liquidation Expectation and Standards, pp. 3-4; https://www.sba.gov/sites/default/files/files/Helpful_Hints_Guide _20120504.pdf
See, “Risky Business Franchisees’ High and Rising Risk of SBA Loan Failure” (p. 1)
A growing pattern for increasing risks, even with SBA guarantees/loan enhancements provide no “cure-all” for positive outcomes.
The proverbial questions arise as to why? How does one rectify or mediate the risks?
The data repeatedly point to two primary drivers for those failure risks and as well identify pathways for their avoidance – wholesale knowledge deficiencies regarding best business practices and financial acumen (knowing where and how to access the right financial tool at the right time and place, and how to manage ad properly utilize those funds for success). (Id.).
Dedicated and specifically structured to provide knowledge empowerment within both areas is the “Ultimate Financing Guide” – an indispensable educational resource/tool immediately accessible and downloadable onto one’s computer to use when and as needed/desired (see below).
As will be covered in more detail within the ongoing VetLikeMe series segmented by funding type, one precept needs to be emphasized right up front. Every financial tool regardless of type (bank loans, credit enhanced by SBA, etc.) is just that. It is only a financial tool. Quality of that financial tool might or might not be a commanding issue. That tool may or may not need serious modification/revisions to provide more positive outcomes for any user.
However, the far more important first focus should be with the user of that financial tool (the entrepreneur/business owner). It’s a rather straight forward precept. Without the requisite knowledge elements (above noted) in place, having funding will not otherwise cure accumulations of risk with anything but adverse outcomes to match.
“Risk comes from not knowing what you’re doing.” Warren Buffett
Adding further emphasis to the critical need for those requisite knowledge proficiencies is a recent development which not only portends increased risks for franchising but potential wholesale changes to the entire franchising business model.
Consider than almost 9 million are employed within over 780,000 existing franchise businesses nationwide, each offering opportunities in varying forms for entrepreneurship and small business ownership – virtually all with directly provided templates for design, market, supply, and operational structures. The business model is particularly attractive for minority and veteran entrepreneurs with often accessible financing to further stimulate/encourage (including SBA credit enhancements or loan guarantees)
Potentially affecting all franchises nationwide is a new ruling that could force local owners to relinquish control back to their corporate sponsors – rendering owners to becoming managers only. See, http://onlabor.org/2015/08/28/guest-post-n-l-r-b-s-browning-ferris-decision-could-reshape-contract-and-franchise-labor/
NLRB Surrenders to Unions; Ruling Destroys Franchises, Negatively Affects Millions
Previously the National Labor Relations Board defined an employer as the enterprise doing the hiring, firing, paying wages, disciplining, promoting, and making scheduling/work assignments. Now the NLRB has radically changed that definition to target companies that contract with other firms for services or set quality standards in exchange for brand licensing implicitly influence the other firms’ employees. That means a requirement to bargain collectively with all of them. If allowed to stand, such a new interpretation potentially threatens the entire franchise model with many far reaching ownership and other repercussions (legal, financial, accounting, tax, etc.)
The simple fact is that anything and everything within any given market (as well inherent business risks therein) is susceptible to “change” – often of the radical varieties.
“When the winds of change blow, some people build walls and others build windmills.” – Chinese Proverb
“It is not the strongest or the most intelligent who will survive but those who can best manage change. ” Charles Darwin
In fact, expecting, becoming attuned to and anticipating change that can or may affect risks are part and parcel of “best business practices”.
Best advice – prepare with the requisite knowledge tools and acquire the financial acumen to match. Those are proven prescriptions for success.
“Even if you’re on the right track, you’ll get run over if you just sit there.” Will Rogers
(Profile: Woodrow D. Wollesen, recognized national small business financing expert, former co-partner national law firm, seasoned entrepreneur/business executive, financial/business operations consultant, former graduate school of business professor, military veteran; 2006 US SBA Small Business Financing Champion, (8 years) Board Member, Executive Officer, Instructor with the prestigious National Women’s Business Center, Washington, DC; NWBC 2005 Man of the Year – see also more extensive background profile at http://www.ultimatefinancingguide.com/about-the-author/; LinkedIn www.linkedin.com/pub/woodrow-wollesen/11/147/652/
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