A franchise can be an excellent investment if — big “if” — you choose the right one. But how do you determine which are the best and the worst franchises?
To shed some light on the issue, the Small Business Administration has provided us with their list of franchise brands ranked by the percentage of loans in default status. Many individuals buying franchises use the SBA business acquisition loan program. So in my office, we think the 10-year loan default rate is a pretty good indicator of whether the franchise is worth considering.
The lists below for the best and worst franchises are for a 10-year period ending September 30, 2018. Only franchise brands with a minimum of 10 loans are included.
The following top 40 franchises had the lowest SBA loan default rate during this timeframe. Percentages have been rounded to the nearest whole number.
|Franchise||SBA 10-Year Loan Default Rate|
|Christian Brothers Automotive||8%|
|Home Instead Senior Care||9%|
|Once Upon A Child||12%|
|Buffalo Wild Wings||14%|
|H & R Block||14%|
|Culver’s Frozen Custard||15%|
|Five Guys Famous Burgers And Fries||15%|
|Penn Station, Inc.||16%|
|Cookies By Design||16%|
|Papa Murphy’s Take & Bake Pizza||17%|
|Jackson Hewitt Tax Service||17%|
|The Cleaning Authority||17%|
|Kids R Kids||18%|
|Wild Birds Unlimited||18%|
|Signs By Tomorrow||19%|
|Napa Auto Parts||20%|
|Subway Sandwich Shop||20%|
|Liberty Tax Service||21%|
|Aussie Pet Mobile Villa Park||21%|
|Little Caesar’s Pizza||22%|
Using the same yardstick, the worst 40 franchises during the same 10-year timeframe are listed below. There may be reasons for defaulting on a business acquisition loan other than a lack of financial performance from the franchise; however, we think a high default rate, especially over a 10-year period of time, is at least a red flag to be considered. Our advice is to be wary of investing in one of these franchises. If you do want to consider one of them, do your due diligence thoroughly, including talking to many of the current franchisees.
|Franchise||SBA 10-Year Loan Default Rate|
|Noble Roman Pizza||92%|
|24 Seven Vending||79%|
|Play N Trade||71%|
|Camille’s Sidewalk Café||70%|
|Figaro’s Italian Pizza||67%|
|Buffalo Wings & Rings||67%|
|Obee’s Soup Salad Subs||63%|
|Atlanta Bread Company||60%|
|Salad Works, Inc.||60%|
|Premier Rental Purchase||57%|
|Econo Lube N Tune||56%|
|Dollar Discount Stores||56%|
|Carvel Ice Cream||55%|
|Taco Del Mar||54%|
|Juice It Up||54%|
|Wings To Go||53%|
As additional information, the below list is furnished in March of 2023 by LiveOak Bank. This bank is the highest volume lender of SBA business acquisition loans in the U.S. and the following is a list of the best performing franchises in their loan portfolio.
|Buffalo Wild Wings|
|Jack in the Box
|Moe’s Southwest Grill|
|Tropical Smoothie Cafe|
Some franchise brands have been ineligible for SBA-guaranteed loans from their inception. This is most commonly because of legal issues created in their franchise documents. For a list of franchises and the issues which render them ineligible for SBA loans, please see our article by clicking here.
Here are additional articles that might be of interest: What is a Franchise Really Worth (includes valuation formulas for most food service franchises), How to Analyze a Business You’re Considering Buying, How to Make a Written Offer to Buy a Business and How to Handle the Due Diligence Investigation When Buying a Business.
For our article on a special type of franchising, referred to as master franchising, please click here.
Please don’t hesitate to call or email me if my office can be of assistance.
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Hi William I enjoy reading your emails. I find them informative and insightful for the small business entrepreneur. I live in New York and I am looking to buy a business. Do you recommend that I work through a business broker to help me find the right match. I am worried that they will only show me businesses they represent, rather than one that would be a good match for me. I am particularly interested in buying an online business. I lok forward to hearing your opinion on this. Sincerely, Nicole Palina-Pace
Nicole, thanks for dropping by. The three largest business-for-sale websites listing businesses that are for sale are http://www.BizBuySell.com, http://www.BizQuest.com and http://www.BusinessesForSale.com. You can do your own search on these sites. Good luck!
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Thinking about taking on a franchise opportunity? Be sure to look at this list first!
Norwalk Furniture Idea is no longer a franchise. Any stores that kept the Norwalk Furniture Idea or Norwalk Furniture name are independently owned and operated and do not hold any franchise contract. Norwalk Furniture is now strictly a manufacturer of custom upholstered furniture. This has been in effect since the company was re-born in Oct. 2008
Thanks for your great information, the contents are quiet interesting.I will be waiting for your next post.
auto brokers license
Blue MauMau has incorrect information listed about Sam & Louie’s New York Pizzeria. The failure rate is 7.7% according to the FranData and the Franchise Registry, not 40%. Below is a link to the report that has the correct information. https://www.dropbox.com/s/0uxsc4pb2imve07/Enh_SBA_SLNYP%20%281%29.pdf
I am thinking of opening an education franchise. I have been researching different companies. I had narrowed down my search to Kumon Math & Reading centers, EyeLevel centers and JEI Learning centers. Then I read about the child abuse, child sex scandals, child molestation cases at franchisee centers of Kumon Math & Reading. I don’t know if the others too have similar franchisee sex scandals going on.
I do not want to associate myself with a company like Kumon that is in childrens’ education but actually victimized innocent children. What would you advise?
George, I’m not aware of the Kumon scandal. That sounds serious, and would give me pause also. We have a Huntington center listed for sale and from my research, I think they’re a good organization.
George, I agree with you. I too wouldn’t want to be associated with a company like Kumon Math & Reading centers that has a history of sex crimes against children. Child sex crime scandals is the worst types of scandals. It never goes away no matter what overtures companies may make.
I have seen entire schools dwindle and ultimately shut down because of molestation scandals. So for a franchise like Kumon Math & Reading centers that cater to young K-12 children the impact can be far greater. It just ups the risk to your investment, to a whole new level. Ultimately, let’s face it. The Kumon franchise http://www.kumonfranchise.com system is made up of many independent operators. Being a part of the Kumon franchise system creates a “guilty by association syndrome” for the rest of the Kumon franchise system even if the sex crimes against children didn’t involve all the Kumon franchisees. Thus the risk is high. The risk is even higher if you attempt to purchase an existing franchise which would undoubtedly cost you umpteen times more money. A tainted franchise system like Kumon franchise could possibly wipe you out financially.
Having bought and sold franchises, I know it is a difficult decision to choose between franchise systems once you have set your mind on an industry, in your case “education.” My advice would be to draw a SWOT chart for yourself and keep an open mind about the industry. Then choose an industry that matches your strenghts. Then research on the franchise opportunities in that industry. Research, Research, Research!! You can never go wrong. Or take the advice of a franchise consultant like William Bruce!
The problem with Kumon Math & Reading is that sex scandals have been perpetrated by the Kumon family themselves. So who can blame many of the franchisees for sex crimes?
When my sister first opened a Kumon center in Atlanta the son of the founder of the Kumon Math & Reading company was involved in a major sex scandal with a franchisee Debra Tajiri, who owned two Kumon Math & Reading centers in Manoa and Kailua. She later claimed that Hiroshi Kumon had ruined her life after they had an affair and began asking him for money over a 21-month period beginning in March 2002. An employee of Debra Tajiri, the Kumon franchisee, later allegedly extorted $150,000 from a son of the founder of the Kumon learning method in exchange for 2,000 “compromising” photos. Debra Tajiri and one Sean Yonehiro, whom she hired to work in her centers as an assistant, were later arrested and faced a charge of sending international extortion communications which is punishable by up to 20 years in prison. Both were arrested after Yonehiro met with an FBI agent posing as Kumon’s attorney at Ala Moana Park and took from him a bag containing what he believed to be $150,000. At the time of the affair, Hiroshi Kumon was Director of Kumon Institute of Education in Japan, the parent company of Kumon North America, one of five regional headquarters worldwide responsible for operations in Canada, the United States and Mexico.
An individual who went by the name “Max Lee” and who had been e-mailing Hiroshi Kumon while he was in Japan threatening to release compromising photos of Hiroshi Kumon if he didn’t pay for them. The complaint does not describe the photos but does say that Lee threatened to release the photos if Kumon also did not send more pornographic pictures of himself. More than five years after their affair, Debra Tajiri (the Kumon franchisee) allegedly began e-mailing Hiroshi Kumon asking for $500,000 to remodel her house, the complaint said. In those e-mails, she allegedly told Kumon that “you have taken a lifestyle from me,” and that she was considering filing a lawsuit. She also accused him of infecting her with a venereal disease and said that he should pay for her medical treatment. Kumon allegedly paid her more than $350,000. Later Debra Tajiri, the Kumon franchisee, allegedly continued asking Kumon for money, saying electricity at her home was shut off and that she could not pay contractors to finish work on her home. Debra Tajiri, the Kumon franchisee, e-mailed Hiroshi Kumon again, saying she needed $550,000 to secure a building contract. When he didn’t respond, she e-mailed him saying her life was “hell” and was over, and asking him why he had not sent money. Investigators learned that the e-mails sent by “Max Lee” came from an account belonging to Debra Tajiri and from her Nipo Street home.
One of three vehicles spotted at Kumon franchisee Debra Tajiri’s residence was a white Ford pickup truck that was later seen at the Hawaii State Library — the first meeting Lee allegedly requested for Kumon’s representative to bring the money. A man was seen walking around the library on that day before leaving in the white truck registered to Yonehiro, who lists a Nipo Street address as his residence.
George, there are no Kumon sex scandals or anything of the sort. That is absolutely not true. It sounds like horrible rumors that someone is spreading. Check our track record and our Franchise Disclosure Document. We have a clean history and track record. We are one of the world’s largest and oldest credible franchisors in the world, with over 4 million students. I know, because I have been with Kumon for 15 years and I have 4 children who have been in Kumon. If I ever had a clue that those things were happening, I would have left long ago.
Marty, a quick Google proves there was a sex scandal at Kumon. Please see http://abc7.com/archive/8347625/ and http://www.sgvtribune.com/technology/20111114/victim-13-pleads-in-bellflower-court-to-give-convicted-molester-what-he-deserves.
I’m not saying it is or was systemic at Kumon, but it did occur at a California location. Get your facts straight.
Kumon Math and Reading in Saint Louis, Missouri – Former Kumon Franchise owner would never recommend the franchise, but learned from the program
As one who also lost my shirt (and savings) from the worst franchise “opportunity” on the face of the earth, I would recommend anyone wanting to invest that they run as fast as possible in the opposite direction. I will not go into detail, but I was shafted coming in and when I closed.
That being said, I will tell you that many Kumon centers are run by people like me. I made sure students understood, made it my first rule that NOBODY cried, used whatever tools I could to get the point across (took some flack for that from Kumon central), and had a growing respect for the way the worksheets were laid out. Unneeded repetition is a direct result of the owner, not the program. I had many kids who started behind in their school grade. Some took longer than others to catch up/surpass, but the many, many who progressed all had one thing in common – parents who were involved. If the parents did not grade and make sure the work was corrected, we met and I showed them how it made a difference. It was a cheerful, clean and bright center where the kids were not miserable. My best review was that lots of them cried when I announced I was closing.
I quit when the administrators started telling us not to talk/ explain to the kids?! As a former college professor and engineer, I asked how they would help in math level K when the example is inadequate. No satisfactory answer! I showed them that reading the poetry and Shakespeare aloud with inflection helped the younger kids understand the meaning. Not allowed! They wanted me to completely change my center to match some new arbitrary and depressing template. And increase my staff when I hadn’t paid myself in 2 years.
So, please evaluate the Kumon centers individually. If they tell you they guarantee results with no effort on your part, run. If they insist on a contract, run. I still have a few friends who have theirs open and are killing themselves trying to do right by the kids, with very little monetary return. They do exist.
It is well known here among franchisees here in Australia that Kumon corporation in Japan is bankrupt and overseas operations have been struggling for years. Not sure what the future holds but it seems that this franchise chain doesn’t hold much hope for the future.
If Kumon corporation (franchisor) is bankrupt, it’s smart to consult a franchise attorney about your options and rights. But while a bankruptcy filing may cause sleepless nights, you might be better off selling your Kumon business in the long run.
I just watched a video about children being molested at Kumon tutoring centers. It is scary. Now no place is safe for children.
I feel so sad for the kids. What the kids had been put through was inexcusable, which I realize happens a lot. Such incidents are awfully traumatic for children and they will have to live with a lifetime of guilt and shame.
My thoughts, well-wishes etc., go out to all children molested by their Kumon tutors 🙁
Children should be encouraged to talk to their parents and tell them of such crimes as soon as they happen.
BlueMauMau and other websites have incorrect failure rates listed for many, many franchises. Sam & Louie’s is listed at 40% failure rate, the correct rate is 7.69%. Here is a link to some information about the incorrect reporting and the corrected information about Sam & Louie’s specifically.
Does anyone know of a way to get websites like BlueMauMau and others to post the correct information. I have contacted them directly and they just don’t care. They don’t realize (or again don’t care) the damage that this incorrect information can cause a franchise system in terms of gaining new franchisees and securing loans for those that are not scared away by misinformation. Unfortunately most people believe that all information posted on line is factual.
Michael, it appears to me that your complaint is with the SBA, not BlueMauMau, as they are just reporting information that the SBA has released. I believe if you got the SBA to correct any alleged errors, BlueMauMau and other websites would report the corrections.
I’ve tried that approach, I will try it again. BlueMauMau did not care to correct or even note it when I supplied them with the facts.
Why do people have to “Molest” children? Kumon Math & Reading is one of the worse tutoring companies out there. But, they still charge enough to keep their franchisees well fed. Not sure then why Kumon franchisees molest children? These cases should be a wake up call for all parents who fail to spend some time with their children and think that such tutoring centers places to send their children.
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Can you help me acquire a Dunkin Donuts franchise. I would like to hear your evaluation of this company. Is the franchiser fair and supportive as they say on there website.
Valjean, thanks for dropping in. I haven’t had any significant dealings with Dunkin Donuts franchisees or the franchisor. Generally, my impression is they are an OK organization. Ask them if they publish an earnings claim which is the Statement 19 in their Federal Disclosure Document (FDD). It’s optional for a franchisor to include a Statement 19 in their FDD, but if they do, it will tell you a lot about the average earnings of their franchisees. The FDD gives you a lot of other information also, including any litigation in their history.
Hi. Massage Envy claims a 99.1% success rate. How can they have a default rate over 4%? Thanks
John. it’s most likely due to measuring different time frames and/or different definitions of “success”
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What are you thoughts on Shipping and mailing franchises? Especially Postal Annex and Goin Postal
Good Morning. Thanks for visiting. I’m not too familiar with the two you mentioned. I’ve only heard the names. I think the UPS Stores, which I’ve had experience with, are a pretty safe investment.
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