Financial Challenges Facing Franchise Businesses

The current financial conditions facing franchise owners can only be described as extremely difficult. Recent reports display that SBA loans for franchises are at a record default rates in 2008-2009. Compared to 2007 the default rates have gone up 43% and have cost the SBA over $93 million final year. The above statistics indicates that franchise owners are possessing a difficult time getting their ventures to succeed in these difficult financial times. Everyone certainly understands the difficulty in getting an special tiny business to succeed and meet their financial obligations.

So, what can franchise business owners read from the above statistics regarding recent SBA loan default rates? What are the factors that seemingly contribute toward the high default rates? Well, a review regarding the statistics seems to reveal multiple simple factors that affect this. First, those franchises that focused on serving the affluent clients hold a more difficult time during these tough financial conditions. As families face decreased income levels, they begin to slice return on those good and services offered by franchise businesses that should be regarded luxuries. Cleaning services, laundry services and lawn services shall fall into those categories. Secondly franchises that are in an already crowded market face the prospect of stiff competition and as many clients for that good or service fall even slightly, marginal businesses suffer immediate consequences.

As an example there exists very many of pizza delis most independent and franchise operators. As families conserve cash and begin to bake at building more often, they slice return on ordering pizza. This affects all smaller and newer operators and those with decreased financial capital. Third factor that affect franchise businesses is the business model regarding the franchise business. It is crucial to hold a solid business model that works even in a difficult financial environment.

If the business model is marginal to begin with and depends very many on the operators talent and experience, then this environment shall place you to test. As an example opening fruit sip and cold sip stores in colder climates in winter does not make sense. So what should a franchisor do in this environment? It is crucial for franchisors to maintain their current base of operators and expand their base cautiously. Nothing is more valuable to a franchisor than a demonstrable track record of success as evidenced by their customer base. A huge many failures and defaults does not inspire confidence in a potential franchise opportunity seeker.

There exists multiple things the franchisor can and should do. Speak to your customer base regularly and poll them on their market situations. Give advise and counseling where appropriate and direct them to financial resources when needed. When selecting new franchise owners, hold a higher standard, for financial and capital requirements, so they can withstand the market forces longer. Make sure to give adequate training in operations so they can be more successful in operating their business.

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