The Impact of Franchising on the Financial Performance of Small Firms

Abstract

The objective of this study was to examine the relationship between form of ownership (independent vs. franchise) and financial performance of a select group of small, mature firms. MANOVA and ANOVA tests failed to identify significant performance differences. Recom mendations for future research studies are mentioned.

Venturing into a small business is risky. Approximately 400,000 small businesses fail each year (The State of Small Business 1986). A conservative estimate of the failure rate of start-up firms in their first 5 years is close to 65% (Hodgetts 1982). Between one-quarter to one-third fail in their first year of operation (Small Business Reporter 1986). However, many would-be entrepreneurs minimize their business risk by purchasing a franchise rather than starting from scratch. In contrast, only about 2.5% of franchise-owned outlets discontinue operations per year, many for reasons other than economic ("Franchising is Management for Success" 1986).

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