Franchisee failure rates – fact or fiction?

Ever since the publication of the results of the 2024 Franchise survey, commissioned by The BFA, there have been many posts on social media making exorbitant claims regarding how successful franchising is and also how few failures there are in franchising Vs independent small businesses.

“Did you know that franchising has a less than 5% failure rate over 20 years?” BFA post

“The good news for Franchising is that the vastly improved success rate of 99.% versus 50% for an independent start up is a key area to be championed by the sector.” – Elite Franchise article

In this short blog I will explain why;

  1. It is not currently possible to make these claims and
  2. What actions needs to be taken so that we get accurate information that we can trust

It is NOT possible to estimate with confidence the failure rates of franchisees as there is no regulation of the industry in the U.K. where this type of information is mandated and therefore collected in a robust and consistent way in stark contrast with general company failures which are captured in a robust way through Companies House. Social media posts like this further damage the low trust levels people have of the franchising sector in the U.K.. 

I believe that the data that is being quoted is based on responses to a question that was asked of a limited number of Franchisors in the 2024 franchise survey, commissioned by The BFA, with absolutely NO ability to check the accuracy of the responses. It is in the interests of Franchisors to respond very positively to a survey question like this and another example of the franchising sector marking its own homework.

The extensive use of NDAs in the franchising sector, as highlighted in a previous blog, means that exiting franchisees cannot even tell their own mother about their experiences and therefore real life experiences of franchisees are being suppressed, including why they have left a franchise and their views on the business.

A further issue is the use of EVIL Liquidated Damages clauses in the majority of Franchise Agreements which are completely unethical and which means that it is extremely costly to terminate your franchise early even if you are losing money and therefore franchisees battle on with their franchise, which would not happen if it were their own independent business.

What we need in the U.K. is;

  1. Regulation of the sector, as exists in most developed countries, where Franchisors are required to make formal disclosures, including franchisee turnover, franchisee failure etc. and reasons for the same, and there are consequences for fraudulent disclosure
  2. The banning of NDAs which are designed to prevent real life experiences of franchisees being shared more widely
  3. The banning of EVIL Liquidated Damages clauses in Franchise Agreements (See my earlier blog on “Are Franchise Agreements ethical?”

Anyone thinking of investing in a franchise would then have access to transparent information that they can trust, including turnover data on franchisees, franchisee failure rate, any litigation etc. which would help them make an informed decision as to whether to invest or not, which sadly is not possible today. In the absence of regulation and before investing in a franchise, I would strongly encourage you to read my blog regarding Due Diligence where I outline a simple 5 step process along with sample questions to ask of the Franchisor here

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Details about the author and his experience of being a Franchisee can be found here. Just to be clear, the authors’ views expressed in this blog are exactly that….his views, based on his personal experiences, by connecting with many current and past franchisees of many different Franchisors and through his own market research.

See below for links to some of my earlier blogs;

#theperilsoffranchising, #franchise, #franchisor, #franchisee, #franchising, #franchiseagreement, #BFA, #britishfranchiseassociation, #qfa, #qualityfranchiseassociation, #departmentforbusinessandtrade

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