Poll: It is hard to be a franchisee

April 29, 2015 Blog

A new poll finds that a majority of franchised business owners in California and nationally have taken on significant debt, have experienced franchisor-imposed changes that raised costs but not revenue and have faced the threat of their franchisor taking away their business.

The survey of 489 California franchisees and 633 in the rest of the continental U.S. was released as the Small Business Investment Protection Act advances in the California Legislature. It was conducted by FranchiseGrade.com, Inc., a leading market research and analysis firm for the franchising industry and was commissioned by Change to Win, a federation of unions that includes the Service Employees International Union, the United Food & Commercial Workers, the Teamsters and the United Farm Workers.

Key results include:

  • “Most franchisees take small salaries and run at a loss or on a break-even basis”
    Most franchisees are inexperienced: 64 percent of franchisees in California (63 percent nationally), had not owned any type of business before investing in their franchise system.
  • Most franchisees are in debt: Three quarters of California franchisees (74 percent) borrowed to buy into their franchise system (68 percent nationally). Half of California franchisees (49 percent) pledged their home as collateral for their franchise investment (43 percent nationally), while 18 percent of California franchisees used or pledged their 401(k) retirement savings (20 percent nationally).
  • Most franchisees take small salaries and run at a loss or on a break-even basis:
    • Four of five (79 percent in California and nationally) reported a personal salary or draw last year of less than $50,000.
    • A combined 71 percent of franchisees in California operate at a loss or make no profit (68 percent nationally).
  • Franchisors require franchisees to spend on initiatives without a financial return: Fully three-quarters of franchisees (78 percent in California and 75 percent nationally) report their franchisor made changes in manuals or procedures that hiked costs without increasing revenues.
  • Franchisors threaten retaliation when franchisees speak up or join together: Half of franchisees (52 percent in California and 46 percent nationally) report at least one threat or negative action by their franchisor related to speaking out about problems or joining a franchisee association.
  • Franchisees face the threat of franchisors taking their business: Four in ten California franchisees (38 percent nationally) report their franchisor telling them they might be terminated based on actions they thought were appropriate for the operation of their business.