Franchisors Should Avoid the Danger Signs of SBNO

Published on March 09, 2017

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In the franchise industry, the sale of new franchises is often used to measure the strength of a franchise program. Fast growth franchise programs may be considered a predicator of success and some franchises have grown to thousands of locations. However, they represent a small percent of all franchises. This type of fast growth can lead a franchise program into trouble. An indicator of this can be found in the Item 20 category of the FDD, under Sold but not Opened (SBNO).

Before you invest in a franchise, you should investigate the reasons for a high SBNO, such as:

  • The new franchise sales generate initial franchise fees, which is an immediate source of cash flow for the franchisor. If a franchisor needs to sell new franchises in order to stay afloat, it’s a recipe for disaster.
  • The franchisor focuses too much attention on adding new franchisees at the expense of supporting new franchisee growth.
  • The franchisor’s corporate culture or profile is biased towards selling as many franchises as possible.
  • The franchisor’s business strategy is based on selling a minimum number of franchises every month. This places pressure on the franchise sales staff to sell.
  • The impetus for new franchises is so great that the franchisor encourages new franchisees to buy more franchises. This can lead to all kinds of problems.

The impact from fast franchise growth depends on the ability of the franchisor to manage this growth. There are numerous examples of franchisors not being able to digest and administer to a large number of new franchisees. When a franchisor sells more franchises then they can handle, the program is headed for trouble. All new franchise programs have some hiccups during the early years of development but aggressively selling too many franchises can turn the hiccups into problems.

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About the Author: Ed Teixeira
Ed Teixeira is a recognized franchise expert with over 35 years experience in the franchise industry. He has served as a corporate executive for franchise firms in the retail, manufacturing, healthcare and technology industries and was a franchisee of a multi-million dollar home healthcare franchise. Ed is the author of Franchising From the Inside Out and The Franchise Buyers Manual. He has participated in the CEO Magazine Roundtable Meetings with business leaders from around the country and spoke at a number of venues including the International Franchise Expo and the Chinese Franchise Association in Shanghai, China. Over the course of his career, Ed has been involved with over 1,000 franchise locations and launched franchise concepts from existing business models. Ed can be contacted at 631-246-5782 or ed.teixeira@franchisegrade.com.
Franchisors should avoid the danger signs of sbno

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