Franchise Nightmare

Make a big list of questions and get them all answered before you buy a franchise.  You need to know as much as you can.
Make a big list of questions and get them all answered before you buy a franchise. You need to know as much as you can.

My Own Franchise Nightmare Began When...

I was made redundant. I got a good payout though and decided I was finished with working for somebody else; I really wanted to be my own boss. I spent a lot of time thinking about what kind of business I could do, but something held me back - the fear of starting a business that would fail and what this would do to my wife and kids.

It was then that I heard about the success rate for franchises. What I read was something like "after 5 years, 90% of franchisees are still in business while 80% of none-franchise startups have disappeared". Wow, this completely blew me away. I had an 80% chance of failing if I started my own business. So all I had to do was buy a franchise and work hard at it to make sure I could earn a good income and have a business that would stay the course.

Made it into an easy decision for me. And so I spoke to some franchisors and they didn't argue with these stats. In fact, I think when I said I was looking for a business with staying power, they even quoted the 90% rule back to me. My next step was to speak to a few franchisees to check the story out.

The Franchisees I Spoke To All Said...

"It is a great business to be in, I love it. You can earn a really great living and create something that is special. There is a huge sense of achievement."

And they all said the same kind of thing - just how wonderful it was. In fact they were so enthusiastic, they practically sold me on the franchise on their own, without the franchisor being needed at all. For the odd one or two I spoke to who weren't doing so well, I kind of rationalised away that they were not as capable as me, or were not as driven or ambitious. Anyway, even these guys lower down the ranks of performers seemed really happy and enthusiastic.

So I thought it was time to get some independent advice.

My Accountant & Solicitor Said...

The franchise agreement was typical and that the fees, while high, were in the normal range too. They also explained that it's not possible to negotiate with a franchisor, you just follow the rules. Basically,suck it up and hand over your cash, franchises are good, safe and reliable places to put your cash.

I paid their bills and said "thank you."

A few months later I got trained up and opened my doors for business. It was only then that I started talking properly to other franchises, without their guards up, over drinks at franchisee conferences or on the phone when things didn't go so well. Finally I started to learn what I wish I had known all along.

The Truth About Franchises

It seemed that many of the franchisees in my area had negotiated some special side-deals with the franchisor. The kinds of things that began to eat at me. Why didn't I get the same special deals that these guys had? I bought the same franchise, so why didn't I get such a deal.

So I started to question why it was that my accountant and solicitor both told me that you can't negotiate. Clearly I didn't, but how come so many others had? Then I found out, after many drinks and late night at the bar, that another franchisee was even paying less money than me for the franchise. So how come I got screwed over? I am not stupid at business and have done some pretty neat deals in the past. Just something about doing it for myself that meant I missed stuff I shouldn't have missed.

And then I got to thinking - all the people who advise you about businesses have a vested interest in selling you a franchise. The franchise associations are all run by franchisors, the franchise expos are paid for by franchisors and so on. So there is no strong voice for the potential franchisee.

Just one thought really nagged me though. Why did other franchisees not tell me the truth about it, before I bought?

Why Franchisees Tell You Lies...

It simply comes down to human psychology.

Let's say you just spent £14,000 on a new car. You have been looking at cars for a month or two and finally decide to get one. You spend a huge sum of money on the car and take it out for a drive. You love it. Of course you love it - you just spent £14,000 on it and you know you can't give it back!

So now let's say you spend £25,000 buying a franchise and another £10,000 to open up in business. You are very proud of what you have done. A year later you are not making huge sales but you have spent £35,000 and a whole year of your life trying to make it work. Somebody calls to ask if you think buying your franchise was a good idea, and what do you tell them? You are not going to say, "Don't do it, you would have to be stupid to spend that much money for this crap!". Nope, you tell them that "I have had a few problems but I love the business and can't wait for next year. The franchise is brilliant it is just that I didn't do it all right to start with and that has cost me."

So the franchisees fool themselves into thinking it is great!

Now of course this isn't true of every franchise - I really wish I had bought a Subway or McDonalds at the right time to really catch the wave. No, the problem is that the crappy franchises ride on the backs of the famous big ones, pretending that they are as good and as profitable for you.

The message I am trying to give you, is what they used to say on Hill Street Blues...

Hey, Let's Be Careful Out There...

Keep your eyes, ears and nose open. Pay attention to your feelings - if it seems to good to be true, it almost certainly is. Listen to what the everybody tells you but make decisions based on the hard facts.

I got stung for £25,000 that I should never have spent. I rushed into the franchise without doing my research properly. I got conned by the confidence of a franchisor who was really a first-rate con-man. The other franchisees were like a cult and I simply didn't see it coming. Of course, I didn't know how to properly research a franchise since it was my first time. Here's a great series of articles on buying a franchise that helps you to cut out the bad franchises quickly.

You'll also find questions to ask a franchisor in another hub I've written.

Good luck in starting up your own business.

More by this Author


Comments 40 comments

Acorn Valley profile image

Acorn Valley 8 years ago from WV

Thanks for writing this. I'm on the verge of purchasing a franchise and this makes me want to back up and do some more research.


midnightpiper 8 years ago Author

Hey Acorn Valley, it's a real pleasure. It is a bit of a mission for me now to help people get to the truth about the franchise they are looking at. There is so much spinning around in your head you get kind of giddy with it. I appreciate your feedback too, made all that typing feel worth it!

Feel free to ask any questions - I'll do my best to answer and help.


cflynn profile image

cflynn 8 years ago from Ireland

excellent hub. franchises get away with murder. I saw this info on about .com

a long overdue change.

The Franchisor Must Tell All

Another important change in the new FDD is that the content includes more detailed information about direct and indirect parent companies. Disclosure of any lawsuits or bankruptcies must be included. Additionally, the franchisor has to reveal whether any officer of the franchise has any interest in any approved suppliers.

With regard to territory disclosure, the franchisor must include in the FDD information as to whether the franchisor or any affiliates make use of any other types of distribution channels such as the Internet, telemarketing, or catalog sales. Also, the franchisee must be notified of any restrictions imposed by the franchisor prohibiting previous or current franchisees from discussing their experiences with prospects.

Under the FDD, franchisors are also required to provide data that shows how many franchises over the past three years were sold, terminated or transferred. It is important to note that the franchisor selling a previously franchised channel must provide a supplemental disclosure with the name and contact information of the any previous owners from the prior five years. The franchisor must also note the reason for the changes in ownership.


midnightpiper 8 years ago Author

Great feedback thanks cflynn!

The problem as I see it is there are a few great franchises, some good ones and a whole pile that ride on the back of these. There are just too many crooks and dodgy deals done, where a big pile of money is handed over for a bunch of procedures with no backup.

Those changes you post from about .com look excellent - the points about talking about franchise restrictions and franchises sold/terminated/transferred are very relevent in my eyes - these are the kinds of questons that need answers before you buy a franchise.


funride profile image

funride 8 years ago from Portugal

Great hub! Welcome to hubpages, midnightpiper. I used to a franchise company and I saw how things work :/ . There is only one way to win with it: franchise your own business to others ;)


cflynn profile image

cflynn 8 years ago from Ireland

you are welcome midnightpiper. I am on a mission to spread that particular piece of info. i am amazed with what franchisors get away with. it is morally wrong even if they have their *** covered!!


midnightpiper 8 years ago Author

Hey Funride, thanks for your feedback - it's nice to know the effort paid off. It is such a shame that so many franchisors just want to rip off the franchisees.


Eric Graudins profile image

Eric Graudins 8 years ago from Australia

Great hub nightpiper - with some worthwile advice.

I' suggest getting Robert Cialdini's very readable book "Influence - the psychology of persuasion" for some incredible insights into the way humans behave, and how marketers take advantage of our hard wired human traits.


midnightpiper 8 years ago Author

Hi Eric,

Hmm, I think I've been recommended that one before and put it into my Amazon Wishlist - I'll get that with my next order. Thanks!


midnightpiper 8 years ago Author

Horrible story here about Dunkin' Donuts catching franchisees out with minor contractual issues and forcing them to sell out at a very low price and to pay a big fine too.

Franchise agreements stink - it's so important to get a good lawyer on your side.

http://www.nydailynews.com/ny_local/brooklyn/2008/...


viralprospector profile image

viralprospector 8 years ago from DFW Texas

Midnight Piper;

This is another good hub from you.

I have heard wild claims about franchise success, too. I cannot find a reliable study one way or the other. Defining the rules of a meaningful study is hard. I have even heard that 95% of franchises succeed, and 5% of non franchises succeed. That is ridiculous, as you pointed out.

I wish there was reliable data on the success rate of various ventures. Clearly, the 95% success rate of franchises has been shown to be an unvalidated study. I think the SBA was attributed that myth, but they have clearly disclaimed it.

There are industries where the franchise name is helpful, but get ready to fork out serious cash for them, i.e. a Chevrolet dealership. I think the food industry is one. It is hard to build a brand, so the name is in fact worthy of an investment in blue sky for a brand like McDonald's. Bad will comes with it, though, too; so it is important to do your homework, as you wisely suggest.

Google has turned upside down the idea of the repeatable model, though. Duplicate content on a website is the kiss of death to search engines, so the internet MLM model is dead. How many of them fail? I don't know, maybe they are not franchises.


Rhyemba profile image

Rhyemba 8 years ago from UK

Hi midnightpiper,

A brilliant article with some really important points.


Guest 7 years ago

I take it you bought a Cartridge World Franchise, based on what you have said here.

If not it is exactly the same as your experience, within 3 years The UK had 300 CW's. within the next 12mths this will be down to <150.


midnightpiper 7 years ago Author

Hi guest,

It wasn't a Cartridge World franchise I bought, but I feel for you.  Horrible that over half the Cartridge World franchisees will have failed within 3 years.  Good luck in what you do next.  Thanks for adding to this thread.


Colin Mather profile image

Colin Mather 7 years ago from Northamptonshire, UK

I have been involved in Car Rental Franchises and have printed my opinions in a hub http://hubpages.com/business/Car-Rental-Franchise-... Needless to say, The only people that make any money are the Franchisors!


Mr. Truth 7 years ago

You know, I see this all the time. I recommend talking to existing franchisees within the franchise system to prevent this from happening. My website is dedicated to leting franchisees discuss their issues with eachother in a private manner. If you are interested in a specific franchise concept, I highly recommend visiting: http://www.thenakedtruthonline.com.


Solicitor West Sussex 7 years ago

Some useful info here. It will make people think things through before commiting to a francise. It's always good to hear other people's good and bad experiences so you can learn from them.


midnightpiper 7 years ago Author

Mr Truth,

Talking to other franchisees is great, but you really have to watch for the "I love it because I bought it" syndrome.  Too many people don't want to admit, even to themselves, that they've been suckered and so you get positive views even from franchisees who are doing badly.


Carol Cross  6 years ago

Unfortunately, franchising is all about growing a business for the franchisor and franchisees are merely expendable resources under the law. Governments and the special interests together with the business media protect the franchise systems.

The flaw in government regulation in the US enables rampant fraud against good faith Americans who invest in franchise. The flaw is the failure of the government to require the seller of the franchise to disclose historical unit performance stastics of the units in the system to new buyers. Thousands and thousands of Americans UNKNOWINGLY buy unprofitable franchises with high rates of failure of founding franchisees.

The status quo PUSHES franchises because all of the special interests gain EXCEPT the franchisees who don't thrive. A franchisor can thrive and grow even as a good percentage of the founding/first owner franchisess fail and lose their investments --especially when they can acquire the failed units through churning to continue to pay royalties and commissions to the franchisor.

The lie about the 90-95% success of franchising is still spread by all of those who sell franchises. Actually 50% of franchisees will fail out of business sometime within the first five years and the status quo works hard to keep this statistic out of the view of prospective franchise buyers.

Pretty disgusting state of affairs! http:thegreatfranchisingrobbery.blogspot.com/


midnightpiper 6 years ago Author

Hi Carol,

I think that's a pretty powerful position you've got, but I don't agree entirely. I do know a bunch of franchisees who are very happy and profitable. I think, like with all things, that there are a bunch of ripoff merchants in franchising, just as there are in most walks of life.

The way in which franchises are regulated is pretty crummy, I'll agree with that. There should be a lot more compulsory information in the UFOC, like financial forecasts, enforced from the moment that the franchise has more than a certain number of franchisees (say after they get 20 on board), along with special warnings when less than 30 franchisees have successfully run the business for a 5 year period.

Midnightpiper


midnightpiper 6 years ago Author

Hi Carol,

Now we're in violent agreement ;-)

The franchise success/failure rate is basically the same as non-franchise success/failures. The difference, as you so correctly point out, is that franchisors should be forced to explain this up front, before you buy, in the UFOC.

The stats that I've seen came from a study done at the International Franchise Research Centre at a London university, now apparently defunct. In this study they looked at a large number of startups and concluded that franchises were marginally less secure than similarly funded independents.

It makes sense, as the profit margins in a franchise are lower (taking into account the franchisor's cut). It's damning that franchisors lie so blatently and I agree with you that they should be forced, through legislation, to declare the truth.

Thanks for your contribution,

Midnightpiper


Carol Cross  6 years ago

Google up the Article by Julie Bennett in the Franchise Times, November-December 2009, entitled "Expose, The unseemly side of franchising during the Wild West days."

Interesting in that she says in this Article that there was a FRONT-PAGE article in The Wall Street Journal in May of 1970 that read: "ONCE CONSIDERED THE DARLING OF WALL STRREET AND THE SAVIOR OF THE SMALL BUSINESSMAN, FRANCHISING TODAY IS SPURNED ON WALL STREET AND CURSED ON MAIN STREET."

Does history repeat itself?

http://thegreatfranchisingrobbery.blogspot.com/


midnightpiper 6 years ago Author

Hi Carol,

I did read that article - great editorial. I think franchising is not so bad if you get a good franchise. The trouble is how to identify it - it's precisely why I like http://www.franchiseopportunityguru.com/frachise-w... because it gives a really powerful set of questions to ask the franchisor. If I had followed this carefully, I wouldn't have bought the franchise I did.


Carol Cross  6 years ago

Yes! Hopefully, if governments won't make the franchisors tell the truth about what they are selling to the public, the Internet will put pressure on the franchisors and the "good franchisors" might have to start advertising their success rates and providing substantiation of these success rates in their disclosures.

But! all of the special interests who are fed by franchising won't want to dry up the pool of "marks" and may find a way to quiet dissent on the Internet. They are looking for that way right now!


elisata profile image

elisata 6 years ago from Netherlands

Hi Midnightpiper,

Although you wrote this Hub a long time ago, I just read it since I just published a Hub on a franchise biz I am in... for FREE. So it is not always a ripp off, I suppose. Sure, you have to work hard with it, I do it from home, but that's with all businesses you start up.

I hope you have found your way in the world of entrepreneurship by now. If you are still interested in the IDEA of franchising - without a fee - let me know and I will bring you up to date.

Cheers!


Chris Zaborniak 6 years ago

Check out this site on the LARGEST FRANCHISOR in all of North America www.thetdlgroupltd.com and see how a franchisor spent over $600,000.00 on 1 family and stood behind the current laws to protect itself. This happened to my family and as of right now 450 current store owners are trying to certify a class action lawsuit against Tim Hortons as the stores are not profitable. Tim Hortons stated in court that the stores success is based on them not closing, even though the store could have gone through 5, 10, 15+ families and to the courts that is considered a success!! I have an article coming out in Entrepreneur Magazine about my site but have had no luck in Canada as Tim Hortons spends 10's of millions on advertising here in Canada. I have all of the documents to back up our claims and can tell you that Tim Hortons is doing all they can to seal the court records and to keep shutting my website down. All they want my family to do is sign a confidentiality agreement so reporters like you can't write stories like this. They are publicly traded on the NYSE and TSE as THI. How come no one questions how they report the sale of the same store over and over, or how many promissory notes are signed by franchisees adding up to the tens of millions of dollars and how does that get shown in their accounting. I also wanted to mention they plan on opening 900 stores in the next year and a good part will be opened in your Country, the USA. So this will start affecting people in your country and not to mention they can skip around your laws in the USA as they have become the sole provider for financing the stores. This is very scary and should be stopped as the loans are back end loaded so the store owner will put in sweat equity and then be trapped and not be able to pay the later years of the loan. So no more banks involved and this added "perk" to being involved in a large franchisor will in essence protect Tim Hortons as they are now in total control of you. If you would like to no more you can contact me at zzangel10@gmail.com


MsFran profile image

MsFran 6 years ago from Here and There, Everywhere

Hi Midnightpiper,

Thanks for all the great info. It has been something that I have been considering doing for a while, buying a franchise. Everything looks so easy on the surface.

I'll definitely have to take a closer look at the small print and get a good lawyer to boot if I decided to go ahead.


midnightpiper 6 years ago Author

Hi MsFran,

Thanks for stopping by Franchise Nightmares! If you do go down the franchise road, be very careful who you trust and believe. The biggest problem most folks have is making a decent profit, because the franchisor takes such a big cut. Even apparently successful franchisees often have big turnover but little profit to show for it, but are too proud to admit it.


irene 6 years ago

the site for thetdlgroupltd.com was again closed down i guess this tim horton corporation does not want anyone to reveal the truth about their franchising.


midnightpiper 6 years ago Author

Hey Irene,

I don't know anything about this particular franchise, but I do know that franchises in general operate with really draconian silencing agreements when a franchisee leaves, so they can't speak openly in public about their experiences.

The franchises claim this is to protect their intellectual property, but that's a smokescreen. The real issue is that many franchises simply mistreat their franchisees and don't want the facts of the matter becoming public.

Thanks for stopping by,

midnightpiper


Franchise 5 years ago

That's very true, that's why here in the Philippines. We at WhenInManila have tied up with the most reputable Franchising association to really educate the public on what Franchising is all about. A lot of people are misinformed as to what it is. It's not always the winning situation and we could very well lose everything, I believe it's something that everyone should know about before franchising.


Don 4 years ago

Ugh.. Wish I'd dug deeper.. but then everyone was lying. Cartridge World sucks.


Mrs T 4 years ago

I made the mistake of purchasing a Wendy's ice cream franchise in 2005... I paid $85,00 my total loan was $110,00... In 2008 all I could get for it was $30,000 of which Wendy's kept $7,500. I still owe almost $100,000 now!

The 2 owners of my store before me lost approx $100,000 and $70,000 I lost over $100,000, the people after me lost $70,000 and the final owner has just walked out and the store has been closed down :( Wendy's should be ashamed of themselves as should out government! We all lost money others have lost money, homes, and their lives!!!


mscott45 profile image

mscott45 3 years ago from UK

There are so many sad stories about people losing their lifesavings due to getting caught up with franchises (me included). Thanks for bringing it into the light!


Never_again 3 years ago

I owned a Cartridge World for almost 5 years and lost everything. I wish any of the franchisees would have been honest with me. Maybe they didn't want to admit they made a mistake buying into a sinking ship. I will NEVER buy another franchise!


Fran-Chising 3 years ago

Last year I got conned by a Franchisor. I did everything correctly, I did the research and asked the right questions and spoke to the Franchisees - Unfortunately the right questions were answered with lies. The existing franchisees gave positive feedback.

My horror began after the contract had been signed and the money was paid. The training was the most unprofessional affair that I had ever endured. They wouldn't answer my questions head-0n. The person, who was second in command within the company, took most of the training and they had no idea what they were doing... the week long thing was terrible.

I knew that I had made a mistake and I had no come back... so I had to go with it. The help was not forth coming, the communication was so bad that I couldn't believe they were an operating company...

In the end I had to quit as I was losing more money and the forecast for the future was so bleak I had no choice but to bail. My Family and I have been ripped of in broad daylight and there is no help for franchisees.

What have I learned?

Only buy into a Franchise that requires a huge investment (ie McDonalds, Subway etc) otherwise stay well clear.

Think about this - start your own business. If you lose the money its because you made the choices. What feels better - to give your money to someone else as a risk, or to risk it yourself... I would rather lose my own money myself.

If the Franchisor has no option for you to cancel once you have signed, then stay clear.

There seems to be no regulation of Franchisors or help for Franchisees. This means you enter the snake pit on your own - get bitten and theres no antidote.

This has caused a lot of pain for my Family as we put a large part of our savings into this company. It's almost a year later and the pain is still there. They took/stole thousands from me and my Family. I have run and owned Businesses in the past and I am not easily conned - but these crooks got me really good.

There has to be thousands upon thousands of people ripped off each year... why isn't there a regulator? The UK needs a regulator!!!!!


Jane 3 years ago

Same here in Singapore, where ranching is now regulated. When franchisor start to sub franchising out and cook out stories that they are expanding. It's more like you are their exit point.

We got conned by an Australian franchisor with a big brand under his belt. They are good in using confidence to trick you buying. Once you paid them, it's a whole new story. Franchising, basically is license to steal.


speedysi 2 years ago

i think that this a fantastic hub and everyone should try to spread the word about the unscrupulous world of franchising. i would say that franchisors hide behind expensive lawyers and use their powers to terminate franchisees without paying them what they are entitled to. the franchising ethos is based upon taking money from people and then not caring about whether they fail or succeed as they can just recruit more franchisees. i know of 1 franchisor in the uk that continually recruits franchisees and charges each franchisee £25k and recruits about 150 franchisees each year, do the maths to see how much money that this franchisor is making. i am currently trying to get my money back from a franchisor but they are using an expensive lawyer to avoid paying me what i am owed and using the old chestnut of i owe them money for lost management fees for the duration of the franchise agreement. i am trying to set up a database of everyone who lost money to franchisors in order to help any future franchisees make a better decision before losing their money as if people stop investing into franchisors they might just become more honest although i think that is very unlikely. if anyone has experience of the uk franchise industry please get in touch with me and if anyone has any experience of sucessfully recovering their money from a franchisor please let me know. sorry for the rant but i am at my wits end as i can't even afford christmas presents for my children.


Tommy 2 years ago

I would like to tell people about my experience in becoming a franchisee I spent £60,000 and after the 6 year contract ended, this was when you were told that you would start earning more money, well to put it bluntly they phoned me up and told me they would not be renewing my contract, which put me in all kinds of debt, no solicitor will take them on, and there's nothing you can do,

So please look into the deal very carefully indeed,


Jbirr 18 months ago

Don't touch franchising....was ripped off for £50k by a so called award winning franchise...only interested in your start up fee and monthly commissions....cost me everything.....if you are going to run a business,you are better off paying for the stuff a franchise gives you indepently when you need it.

The only good thing is that I will be opening up in the same sector again soon indepently and now know the suppliers I can use and the margins my ex franchise colleagues need so will be able to undercut them and still make a healthy profit.

I'm sure there are good franchisers out there but franchisees I have spoke to from other franchises all seem to have been oversold earnings expectations etc

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