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Oregon Office:

Douglas D. Smith

22021 SW Sherwood Boulevard 

PO Box 1034

Sherwood, Oregon 97140-1034

Phone: (503) 840-0000


Utah Offices:

Bradley D. Smith

FranchiseSmith Utah, LLC

5508 West Kensington Circle

Highland, Utah 84003

Phone: (801) 615-1564


Douglas D. Smith

Franchise Smith, LLC

201 Red Pine Drive #4

Alpine, Utah 84004-5618

Phone: (503) 840-0000


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Why this Recession is Different for Franchising

August 9, 2011

I have focused my law practice on franchising and its alternatives since 1982. During that time, periodically, our economy has gone through recessions. Some short lived and some more serious. Each recession held one thing in common, I was busy. During good times there was plenty to do, during a recession there was even more.


Why? During a recession some businesses do well while others struggle. Those that do well are noticed and, if franchisable, become a magnet for potential franchisees. During a recession there always are a larger number of prospective franchisees –especially those who have been displaced, downsized or cut-back.  As a result franchising blossoms as the labor and talent pool moves from businesses that are down to opportunities that are flourishing. One collateral benefit – this movement has a positive effect on the economy and helps to shorten the recession.


Our current economic malaise should have been no different. While most businesses are struggling, many are maintaining and even expanding. Some are thriving (I have one client whose business has increased by at least 20% each year over the past several years and who is adding new locations as fast as he can). The pool of prospective franchisees is the largest and most dynamic and best qualified of any I have experienced. But this time, it is different, significantly different.


Why? Unlike prior recessions, finding funding – especially through bank loans - is difficult if not impossible. “As many small business owners can tell you, finding the best loan can be extremely tricky. Some people will shop around to over 20 lenders and not get a suitable offer, if any.” July 13, 2011.


“As more banks loosen their purse-strings in the slowly recovering economy, borrowers who have good credit and equity and are able to meet collateral and other requirements can get funding from banks and other SBA lenders. …But about 57 percent of small businesses must find financing through alternative means such as unsecured lines of credit and merchant cash advances, according to a recent national study. …Alternative financing can cost upwards of 20 percent annually. … about 15 percent [of small businesses] aren't eligible for any financing.” The Desert Sun (Palms Springs, California) July 10, 2011.


So, there are a large number of attractive franchise systems (or systems that could begin to franchise) and record numbers of highly qualified, motivated prospective franchisees. However, there is little if any funding available to cover the upfront costs to open a franchise. As a result, for the most part, the franchise industry finds itself in the doldrums.


The exception? Franchise systems that have low startup costs that a franchisee can commence with little or no bank loans are moving forward. See, The Kansas City (Missouri) Star May 3, 2011. I have found this to be true for many of my clients. For example:


Husband & Wife stores in Utah.

Fresh Aire Air Fresheners in Idaho, Montana, Florida, Oregon and Washington.   Uberthons running leagues in Arizona, Oregon, Utah and Washington.

ITEX Corporation, nationwide.

Chicken Bonz in Oregon and Nevada.

MediPro in Oregon and Washington.

Valu-Rooter Plumbing in Ohio.

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