Managing Risk and strategy...

Mitigating risk when applied to Franchising is increasingly being scrutinized as the number of untested and/or unreliable Franchise business models for sale has exploded in the post pandemic business climate.  Always remember, the initial idea behind Franchising was that a successful company could continue to grow and expand market share via the transfer of all the risk(s) and capital requirements, to an independent third party.  The “trade-off” for this third party being the presumed mitigated risk(s) of acquiring a proven and successful business model.  The challenge from a risk management perspective is that all risk dynamics are directly correlated to the length of time the initial business model has been in existence.  Consequently, when evaluating a Franchise acquisition, the longer the successful business model has been in practice, the stronger the risk mitigation arguments.  Conversely, the risk dynamics of an emerging brand come with few, if any, risk mitigation arguments, and the buyer of the Franchise should not be surprised when their franchised business fails to meet their financial expectations and/or or solvency requirements at the time of exit.

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