Should There Be More Franchising Regulations in the Future?

Date AddedApril 14, 2009 10:08:27 PM

AuthorMichael Tunstill

Not long ago, there seemed to be some talk that there ought to be more regulations in franchising. Well, this is indeed an interesting thought. But in reality there already is, perhaps too much regulation. For instance; a franchisor must have audits and in some registration states if the franchisor does not have enough capital they will be required to impound funds, which in many cases could be the kiss of death for a cash hungry growing franchise system in its early stages.

In the 80s and 90s there were anywhere from 2600 to 4500 franchisors at any given time, judging from all my old franchise directories. The failure rates of franchisors are something like 4:1 in the first five years. This is much worse than the ratios for other small businesses, which most franchisors starting out are. Indeed, it also higher than franchisee failure rates over all by a long shot. It's actually safer to be a franchisee than a franchisor. That sounds funny, because the upside for the franchisor is entirely huge.

There should be less regulation, and with less regulation would come more successful franchisors which would not have the high costs associated with starting out. For instance, the $35,000 to prepare workable FDDs and audit costs required by registration states. Franchising would also be better served with one set of rules instead of many slightly different rules in various registration, notification states and FTC guidelines.

All these costs are passed on to new franchisees and in the beginning that hurts their ROI and ultimate success as well. Thus, I believe less regulation would be better, as there is clearly hardly any fraud in franchising, whereas lots of fraud in Biz Op sectors.

Additionally, I agree with the summation of many of my industry professionals that more regulation is coming because more regulation for investments is coming anyway regardless of the type of investment. Legislators and consumers seem to want it but, it will only increase the cost to investing franchisees in the future.

Article Source: http://EzineArticles.com/?expert=Lance_Winslow