Franchise Business For Sale
If you see a Franchise Business For Sale beware the churn. Churning. It means selling a franchise with the purpose of watching it fail and reselling it. Franchisors who churn make their money from selling franchises rather than product. (Shubart, Ellen. Franchise Times, Feb97, Vol. 3 Issue 2, p8) This is a major problem worldwide and especially in Australia which the ACCC is supposedly investigating. Franchisors claim it doesn't exist. Here is how it works. A struggling franchisee is left to suffer loss, until they can longer run the franchise and are forced to close it. The franchisor has no interest in helping it succeed. It is either closed or sold back at a cheap price to the franchisor. That same store is resold to another buyer. The franchisor makes more money yet again out of someone elses misery. "For the majority, though, the problem was simple: They couldn't earn enough money to stay in the system. Promises made or expectations about earnings proved illusory and they couldn't pay their rent, take a vacation or even support their families." (Shubart, Ellen. Franchise Times, Feb97, Vol. 3 Issue 2, p8) If a franchisors turnover rate in a single year is close to 30%, chances are they are guilty of churning. A franchisor makes far more money from 2 failed franchisee's than from 1 succesful one. This diagram is taken from Bakers Delight Lies and explains churning.
You can see in this example how churning makes more money for the franchisor than than royalties from existing franchisees.
Australia's ACCC: "Yes, we have discovered that it (churning) does exist in some cases and we will take steps..." Unfortunately, the government, the ACCC and Franchise councils, such as FCA, IFA, have done little, are doing little and most likely will do very little to protect you from churning. By making sure they keep it below a certain percentage, they manage to avoid suspicion. It is criminal. There is little justice for the franchisee in the franchise world. That is why it is important that when you see a franchise business for sale, you should be diligent and suspicious, there are better ways to make money without the enormous risk. Return franchise business for sale to home |