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What percentage of franchisees fail? Why do they fail?

On Behalf of | Jun 21, 2023 | Franchise Agreements

Crazy faux statistics get circulated online all the time — with no hard data to back up their outlandish claims. You may have heard the rumor, for example, that fewer than 5% of franchisees fail. 

In truth, the rate of franchisees that wind up shuttering their doors is roughly on par with the rate of independent entrepreneurs — about 20% in the initial year, and 38% after four years. But this doesn’t mean that a franchise is necessarily a bad risk. Here’s what you should know:

Franchises have built-in supports

Overall, however, franchises withstand the test of time better than most independent ventures simply because of the brand recognition, nationwide promotions and franchisee support that are already in place.

Many franchisee entrepreneurs start out owning a single franchise and acquire additional stores as they see their profits take off. But not every franchisee will find their pockets lined with gold.

What could go wrong?

Franchises are subject to the same problems that dog non-franchise businesses, e.g., lack of qualified workforce and economic conditions. But other reasons that franchises fail include the following:

  • A mismatch between the type of business and the franchisee
  • Not enough funding
  • Lack of people skills
  • Straying from following the winning formula

Not every entrepreneur is cut out to be a franchise owner. Even when the decision is made to buy into a franchise, it is vital to make sure the match is a good one. Some franchises have higher than average failure rates, which is why due diligence requires investigating the franchise you are interested in acquiring. 

Staying abreast of the legal aspects of the franchise acquisition can keep you from many pitfalls on your journey toward entrepreneurship.

NOTICE: This blog is intended solely for informational purposes and should not be construed as providing legal advice. Please feel free to contact us with any questions you may have regarding this blog post.