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False Franchising Numbers

Jim Coen, who writes a very nice franchising blog Let's Talk Franchising, had a good comment on my earlier article about Franchising being a Con.

I am going to reprint it all because Jim makes some excellent points about bogus numbers used by franchise brokers to sell dubious systems.

Jim writes:

" I don't agree with Les Stewart that the concept of franchising is a con or fraud.

But I do believe that many people in franchising are cons and frauds.

Some of the con and fraud in franchising is based on misrepresentations, that just because it is a franchise it is a safe investment. I believe these misrepresentations
contribute to Les's con/fraud theory.

These misrepresentations just bug the hell out of me. I first wrote about it back in 2006

Those bogus statistics seemed to go away after that article. Well they are back in full force all over broker websites:

I have never been able to substantiate any of the statistics below or find the study where they came from.

Here are the most Bogus of the claims:

A 1999 Study by the United States Chamber of Commerce found that 86% of franchises opened within the last 5 years were still under the same ownership and 97% of them were still open for business.

A U.S. department of commerce study conducted from 1971 to 1997 showed that during that time less than 5% franchise businesses were closed each year. Compare that to a U.S. Small Business Administration study conducted from 1978 to 1998, which found that 62% of non-franchised businesses closed within the first 6 years of their existence due to failure, bankruptcy, etc.

In 2000, the median gross annual income, before taxes, of franchisees was in the $75,000 to $124,000 range, with over 30% of franchisees earning over $150,000 per year.

US Department of Commerce/Industry and Trade Administration and Future Small Business in America Study says Franchises have a 90% success rate.

Compare that to a U.S. Small Business Administration study conducted from 1978 to 1998, which found that 62% of non franchised businesses closed within the first 6 years of their existence due to failure or bankruptcy!

Here are some of the sites that publish these bogus statistics:

Franchisenext.

Gbizchoice.

Smartchoicefinancial

Dearbornwest.

Stonebridgebusinessadvisors.

Freefranchiseconsultant

Franchise-Sales-Net

CareerPotential

What you can do is write these people off as knowing anything about franchising; they are stupid and know little about modern franchising realities.

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Full post as published by Misleading Advertising Law on September 18, 2008 (boomark / email).