In the past year, there have been multiple changes in the franchise industry. A year ago, the buzz was the new Franchise Disclosure Document (FDD) rules and updating the Uniform Franchise Offering Circular (UFOC) to the new rules. The real estate market began to struggle, which affected franchise buyers who could not leverage home equity to purchase a franchise. Then the stock market dropped and the economy crashed.
So what has the franchise industry done to try to help? There is one disturbing trend that I see that keeps popping up. That is the waiving of the franchise fee or other fees. Now waiving these fees to the large players in the market is not that big of a deal, but to franchisors in the infancy stage this can be a disaster. These upfront costs are essential to support and train new franchisees. Cutting these costs will lead to cutting support and will be detrimental in the long haul.
Franchisees need all the support that they can get, especially in today’s economy. If a franchise buyer does not have the funds to purchase your franchise, waiving the franchise fee is just going to fuel the fire. This same franchisee will also need the available liquid capital in many other areas and if they are unable to afford the franchise fee, they most likely will be unable to afford marketing, rent, employee costs, etc.