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For many entrepreneurs, franchise ownership represents a structured path to business success, offering proven systems and established brand recognition that can help mitigate common startup risks. While the franchise model provides numerous advantages, recent events have highlighted the importance of comprehensive risk management strategies. As we move through 2025, franchise operators must be prepared to navigate both opportunities and challenges in this dynamic business landscape.

Navigating modern challenges is critical for operators

Franchise operators can face significant challenges that require careful planning and risk management. Here are several key examples:

Natural disasters

The tragic wildfires in California earlier this year served as an all-too-stark reminder of the havoc natural disasters can wreak on businesses. According to a 2022 Federal Reserve survey¹, one in 10 small employers suffered losses from natural disasters in the prior year. In 2024 alone, 27 separate weather and climate disasters caused damages exceeding $1 billion each, which was the second highest annual total following 28 such events in 2023².

Franchise operators need to assess location-specific natural disaster risks and secure appropriate insurance coverage to protect their investments in case disaster strikes.

Food safety concerns

Several high-profile foodborne illness outbreaks occurred in 2024, including contaminated onions that affected a major fast-food chain and sickened at least 104 people across multiple states³. While implementing proper food safety protocols within your operation is essential, contamination can occur at any stage from production to processing to distribution, creating risk exposure for franchise owners.

Labor market challenges

Though labor shortages have eased from their post-pandemic peaks, hiring remains challenging for many businesses. There were around 7.7 million job openings with only about 6.8 million people classified as unemployed in January 2025, according to the U.S. Bureau of Labor Statistics⁴. This imbalance continues to create staffing challenges for franchise operators.

Rising input costs

Inflation pressures, while moderating, continue to impact profitability through higher supply and operational costs.

Take a holistic approach to risk assessment and preparation

Franchise operators should consider comprehensive insurance including:

• Business interruption insurance

• Product liability protection

• Accounts receivable safeguards

Beyond insurance, developing thorough risk assessment strategies tailored to your specific franchise operation is essential for long-term durability. In your risk assessment, consider vendors and partners who owe you that may be impacted by some of the above challenges and how that may impact you.

A comprehensive risk assessment identifies potential challenges and the probability or severity of the impact on your business. Include strategies in your assessment for how to address and mitigate each challenge along with the responsible party. A periodic review of your risk assessment can help you respond appropriately when needed to keep your franchise operating efficiently.

A strong banking relationship can make all the difference

Cultivating a strong relationship with your financial institution is perhaps the most underappreciated aspect of successful franchise operations. The evolving financial landscape requires franchise operators to maintain open lines of communication with their bankers.

Proactive discussions about both opportunities and challenges can ensure you have access to necessary capital when needed and support during difficult periods. Your banker can be a valuable strategic partner who understands your business model and can provide tailored financial solutions.

By combining the structured benefits of franchising with thoughtful preparation for potential challenges, franchise operators can position themselves for sustainable success in 2025 and beyond. To discuss your strategy, connect with an experienced franchise banking team today.