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A growing location count can conceal weak owner returns, expensive openings, and support teams stretched beyond their capacity. As franchisors prepare their 2027 expansion plans, the performance of existing businesses should determine how quickly the next agreements are awarded.
BEFORE YOU AWARD ANOTHER FRANCHISE, EXAMINE THE UNITS YOU ALREADY HAVE
By the Franchise Growth Solutions Think Team
A franchise development presentation can show an expanding map, a healthy candidate pipeline, and several territories approaching award, while offering little explanation of what existing franchisees actually earn. For a leadership team preparing its next growth plan, that missing information deserves attention before another owner commits capital.
Every franchise agreement carries an expectation that the business can be operated successfully under the conditions being offered. Although no franchisor can guarantee an individual outcome, management should assess whether the model provides a properly qualified operator with a credible opportunity to earn an acceptable return.
That understanding requires more than strong sales at the flagship location or reassuring conversations with a few experienced owners. It requires an examination of operating results across the system, including locations that have struggled, owners who have left, and newer businesses still working toward stable performance.
The question for 2027 is how much expansion the economics and organization can reasonably support, given what existing operations reveal.
Understand What the Owner Actually Earns
FRANdata’s public discussion of its 2026 Franchising Economic Outlook identifies continuing pressure on unit margins alongside constraints on consumer spending and access to credit. Its national projections provide context for development planning, although they cannot establish the financial condition of any particular franchise system. FRANdata – FRANdata
Within a brand, leadership needs a clear explanation of how location revenue becomes cash available to the owner. Sales must cover the expenses required to operate the business, including applicable royalties, advertising contributions, technology charges, occupancy costs, and adequately staffed management.
An operation can appear profitable when an owner works extensive hours without recording reasonable compensation for that work. If the business is being offered as suitable for management by employees, its economics should account for the cost of employing someone capable of performing the responsibilities the owner currently handles.
Cash flow also deserves attention beyond the operating profit line, because loan principal payments, equipment replacement, and changes in working capital can affect what an owner can withdraw. A business that reports an accounting profit may still require additional cash, particularly during its opening period or before a substantial reinvestment.
Consider a hypothetical founder-operated restaurant whose financial statements show an attractive operating margin, but whose founder manages purchasing, scheduling, marketing, and daily supervision without drawing a salary. A franchisee employing a general manager and paying system fees would face a different cost structure, even if the location achieved comparable sales.
That comparison does not establish that the concept is unsuitable for franchising, but it identifies adjustments that must be examined before presenting the business as repeatable.
Management should also test proposed changes against owner returns. A promotion that increases transactions may leave franchisees with less cash after discounts, additional labor, and delivery expenses, so its value should be assessed using the costs incurred to generate those sales.
Look Beyond the Best Locations and the System Average
Franchise Business Review’s April 2026 outlook drew on responses from 107 franchise brand executives and more than 26,000 franchise owners. Its public findings described smaller brands experiencing revenue growth while net operating income remained essentially flat, illustrating why an improving sales figure can leave important financial questions unanswered. Franchise Business Review
Those survey findings should not be applied to every emerging brand, particularly because the public release does not establish that participating systems represent the entire franchise market. They nevertheless provide a reason for franchisors to examine their own revenue and expense trends together.
A system average becomes more useful when management understands the results behind it. Established locations should be examined separately from recent openings, while differences in rent, market conditions, business format, and owner involvement should be considered before comparing performance.
The lower-performing group deserves particular attention, because leadership needs to distinguish an isolated execution problem from a recurring weakness in the model. Several locations struggling with similar occupancy costs, opening delays, or customer acquisition expenses may point toward changes in site selection, investment requirements, or launch support.
Closed and transferred businesses also belong in the review, with each outcome examined in context. A transfer might reflect retirement or a successful sale, while a closure could follow a local disruption; treating every departure as evidence of failure would be as misleading as excluding departures altogether.
The Federal Trade Commission’s franchise buyer guidance explains that Item 20 provides information about system growth and ownership turnover, and it encourages prospective owners to contact current and former franchisees. Franchisors should use those histories to investigate what happened at individual businesses rather than relying solely on the current outlet count. Federal Trade Commission
Owner feedback adds another perspective, especially when the financial reports show a problem without explaining its cause. A franchisee may be maintaining acceptable results through excessive personal effort, repeated cash contributions, or workarounds that headquarters has never formally addressed.
Useful conversations should therefore explore the workload required to produce the reported performance, the support owners actually use, and the changes they believe would improve their businesses. Franchisee satisfaction provides information about the relationship, while financial records help determine whether the investment is producing an adequate economic result.
Match Expansion to the Organization’s Capacity
Even an attractive operating model can become harder to execute when openings exceed the franchisor’s ability to support them. The FTC cautions that rapid expansion can leave a franchisor unable to provide promised services, making available resources an important part of evaluating growth. Federal Trade Commission
An expansion plan should account for overlapping opening schedules, travel demands, training capacity, and the continuing needs of existing franchisees. Ten awards concentrated within a short period can create a different workload from the same number distributed across markets and opening dates.
Leadership should examine whether field support personnel have time to analyze results and coach operators, rather than assuming that a growing number of visits or calls establishes effective assistance. Recurring questions, unresolved operating issues, and delayed responses can reveal where the support structure needs additional resources.
There is also a financial question at headquarters, because recruitment revenue can arrive before the company incurs the full cost of supporting the awarded business. Management should project those obligations through opening and ongoing operations, assessing whether its financing and recurring revenue can sustain the proposed development pace.
Requiring every unit to reach the same margin before expansion would create an unrealistic standard, particularly in a young system with locations at different stages of development. Some variation is inevitable, and additional scale may improve purchasing terms, strengthen brand awareness, or support specialized personnel.
However, those anticipated benefits need evidence and a practical timetable. Purchasing savings depend on supplier arrangements and volume, while additional support capacity requires funding before it can improve the owner experience.
For an emerging franchisor, carefully limited expansion may be the most useful way to test whether the model performs beyond its original market. That approach becomes more defensible when management identifies the assumptions being tested, funds the required support, and establishes conditions for continuing or slowing development.
Before approving the 2027 plan, leadership should review location performance, opening costs, and support requirements together. That review should produce specific decisions about acceptable investment levels, suitable markets, operator qualifications, and the number of openings the organization can support.
Internal financial analysis must also be kept within the appropriate disclosure process when information is communicated to prospective franchisees. The FTC identifies Item 19 as the section addressing financial performance representations, so conclusions intended for recruitment materials should receive qualified franchise counsel review before use. Federal Trade Commission
The next franchise award should survive an operating review in which leadership can explain how comparable businesses perform, what causes weaker results, and how the company will support the incoming owner. Where those answers remain incomplete, resolving the uncertainty should become part of the development plan.
A responsible expansion budget will therefore fund improvements identified in existing operations while setting an award pace the organization can sustain. The experience of current franchisees supplies the evidence for that decision, and their results will help determine whether the next group of owners has sound reasons to join.
© 2026 Franchise Growth Solutions. All Rights Reserved, Worldwide.
Sources and URLs
- FRANdata, “Franchising Economic Outlook 2026,” public report overview. The discussion includes projections and should not be interpreted as a final accounting of 2026 results.
https://frandata.com/report-downloads/franchising-economic-outlook-2026/ - Franchise Business Review, “Franchising Outlook Report Reveals Widening Performance Gap Between Large and Emerging Brands,” April 9, 2026.
https://tour.franchisebusinessreview.com/posts/franchising-outlook-report/ - Federal Trade Commission, “A Consumer’s Guide to Buying a Franchise.” https://www.ftc.gov/business-guidance/resources/consumers-guide-buying-franchise
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About Gary Occhiogrosso, Managing Parther
Gary Occhiogrosso is the Founder and Managing Partner of Franchise Growth Solutions, a full-service franchise advisory and development firm dedicated to helping emerging and established brands grow responsibly through strategic planning, franchise development, operational excellence, and professional franchise sales. During a career spanning nearly four decades, Gary has worked with hundreds of franchise organizations and has participated in the development and sale of more than 1,000 franchise locations across a broad range of industries.
Recognized as one of the franchise industry’s leading authorities, Gary has been named among the Top 100 Franchise Influencers and the Top 25 Fast Casual Executives. His work focuses on helping entrepreneurs, founders, and franchisors build scalable businesses through disciplined growth strategies, sound unit economics, operational consistency, and responsible franchising.
Gary is a frequent speaker, author, and publisher whose Executive Edition articles are designed to help entrepreneurs make informed business decisions based on experience, research, and practical application rather than industry hype or conventional wisdom.
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Author’s Note
This article also reflects the author’s professional observations and practical experience accumulated over nearly four decades advising entrepreneurs, franchisors, franchisees, and investors throughout North America. Practical experience has been combined with publicly available research to provide balanced commentary intended for educational purposes.