A Franchise can be an excellent investment, particularly in times of uncertainty, when you aren’t sure which way the market is headed. By investing in an established business model (which sometimes even comes with pre-existing clients) with a centralized corporate office that handles nationwide branding and gives you resources to help succeed, you can fast-track your way to your first successful business venture – or the latest in your portfolio. But as with anything, the devil is in the details, and knowing how to do your due diligence, picking the right industry, and following through can be the difference between your franchise becoming a dream come true or a real-life nightmare.
Today, we’ll be looking at a few popular franchises that are struggling, and a few others that show great promise. Along the way, we’ll be pointing out crucial steps to take as you consider whether or not buying a franchise is right for you.

Red Flag: Growth at the Expense of Franchisee Health

When considering a particular franchise, it can be a good idea to look at the growth rate of the space. Are more people needing home repairs each year or less? Are people buying fast food more than 5 years ago, or less?

You get the idea.

But while growth can be a key indicator of success, it can also be a serious red flag if the corporation values explosive growth over protecting its franchisees.

To take one example, let’s talk about Crumbl Cookies.

Crumbl is a cookie company that sells a rotating menu of six different cookies every week. They can be popular for seasonal occasions like holidays, graduations, and weddings, and in some cases, a Crumbl shop can even be a destination for people to hit up after dinner or coffee downtown. Their product is known for being high-quality, and the corporate office is good about coming up with attractive, novel flavors each week. The average Crumbl can earn around $1.8 million in yearly revenue. Not bad for a cookie stand.

But here’s the issue – Since 2020, Crumbl has sold enough franchises to more than double its total number of locations each year. There are reasons to find this alarming, but the real issue is a radius clause so lax that a competitor can buy a rival Crumbl franchise and open a shop just 5 miles away. In some cases, markets have been overwhelmed by Crumbl locations, with 6 in a 30-mile radius, and franchise owners complain of cannibalization and declining sales, with an already overpriced product ($4.25 per cookie), heading into uncertain economic times.

Those are some alarming statistics and anecdotes.

When considering a franchise, look at growth, but also dive into the corporation’s measures that they take to protect and foster the success of individual franchisees beneath them.

Red Flag: Complaints, Defaults, and High Transfer/Reacquisition Rate

Every company selling franchise opportunities is going to make their franchises sound glamorous, smart, and like a sure bet. Take that as a given – the marketing is probably going to be pretty good because selling franchises can be lucrative for the corporate office. But once you’ve looked through the marketing and resources offered by the franchise seller you’re investigating, dig into the data that they do not put out themselves.

Namely, pick up the phone and call a few existing franchise locations and tell them that you’re a potential franchisee who would like to ask the owner a few questions. Some experts suggest that you speak with 12-15 owners, if possible, and get a sense of how the corporate office treats them. Were the numbers fairly represented? Is the corporation FTC-compliant? What has their experience been? In many cases, you can even ask about profits, revenue, and expenses, as a central point of the franchise model is building a community of owners that can support one another, so you may find franchise owners more willing to speak openly about their numbers. Do a little digging outside of the central office and see what you come up with. If the owners are all unhappy, it’s probably a good idea to stay away.

You’ll also want to keep an eye on the SBA default rate, transfer rate, and reacquisition rate. In other words, if franchises are often sold, reabsorbed into the corporate holdings, or going into bankruptcy, it’s a red flag the size of Texas.

Speaking of barbeque – Dickey’s Barbeque Pit has been making the rounds on the internet as one of the worst franchises to own in the coming year, largely because of FTC complaints alleging false advertising, shady business practices that trap owners into unreasonable supplier contracts designed to enrich the host corporation, and a startling churn rate. For example, from 2020-2022, 27 Dickey’s Barbeque Pits defaulted on their SBA loans. True, those were tough years for the restaurant business, but something as takeout-accessible as Dickey’s should have been able to perform better – and even large, flailing brands such as Subway did not register as many SBA defaults, despite having many, many times more locations and franchise owners.
From 2019-2021, 217 out of 500 Dickey’s locations were transferred or reacquired. That’s over 40% churn in only 3 years. When compared to the retail food franchise sector, which has a 5-year FTR rate of just over 12.5%, Dickey’s doesn’t look so good.

Green Flag: Support

As we switch gears and look at a couple of the good signs to look for when considering a franchise, it of course goes without saying that the numbers have to work. With any franchise, you need to meet the net worth and liquidity qualifications and have access to startup capital. Beyond that, you’re going to want to make sure that the company you are investigating invests in its franchisees and makes it easy for you to find what you need to succeed.
Take Get-a-Grip, for example – a resurfacing company with around 30 franchises nationwide that does brisk business in the repair and refurbishing space. Get-a-Grip provides hands-on training, does educational conferences for franchise owners, and, as a source familiar to the author says, an owner can pick up the phone and call any executive from corporate at any time, even to ask technical questions.

There is, in other words, a lot of support. Some of the owners are friendly with one another, share tips, and I have even heard of franchise owners sending technicians to another city to help a new owner who got swamped with new business.

Green Flag: Consistent Demand and High Market Potential

“Recession-proof” is a word that gets thrown around a lot these days in business circles. In uncertain economic times, it is ideal to have a business (or an aspect of your business) that is not vulnerable to losing a huge share of volume during a hard economy. Perhaps this is one of the reasons why Taco Bell consistently ranks as one of the best franchises to own, despite its relatively high startup cost. Their food is inexpensive to the consumer, popular among people working service jobs who often need a quick, cheap bite, and Taco Bell has a strong, proven history of sales.

Consider the market potential as well – a company enforcing radius clauses, providing marketing support, and providing a product with broad appeal may be an attractive investment if the numbers add up.

You Have to Park Your Money Somewhere

At the end of the day, in this still-inflationary environment, you have to put your money somewhere where it is going to work for you. Real estate is one possibility, but given high interest rates, high costs, stiff competition, and low supply, this may or may not be a good time to buy, depending on who you listen to. The stock market or crypto is another option, but while some are extremely bullish, the bears warn of a coming bubble burst. You have to put your money into productive activity, so if you are considering a franchise as an investment vehicle, just make sure to consult an expert in franchise buying, see a lawyer, and do your due diligence. If you find the right opportunity, it just might be a big win.
None of this should be construed as financial advice.

Quick Hits

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