In a forgiving market, that logic worked. Cheap capital, strong consumer demand, and rising valuations allowed growth to mask structural weaknesses. Many businesses expanded not because their economics were sound, but because the environment allowed them to.
That era is over.
As we move toward 2026, one thing is becoming clear across franchising: growth without margin discipline is no longer a strategy. It’s a liability.
Costs never reset to “normal.” Labour, rent, insurance, utilities, and financing costs all moved up—and stayed there. The result is a very different operating reality. Every additional dollar of revenue now carries more friction. Every new location amplifies whatever inefficiencies already exist.
In this environment, growth doesn’t smooth problems out. It makes them louder.
This shift is showing up first in financing conversations.
Lenders are no longer impressed by topline numbers alone. High average unit volumes carry little weight if margins are thin, inconsistent, or poorly understood. A business generating strong sales but struggling to convert them into predictable cash flow isn’t viewed as ambitious—it’s viewed as fragile.
Margins, by contrast, tell a clearer story. They reveal how well an operator understands pricing. They show whether labour is actively managed or simply endured. They expose whether costs are controlled or quietly accepted.
Strong margins signal something lenders still value deeply: competence.
This change isn’t limited to banks. Buyers are evaluating businesses through the same lens. Valuations are compressing for concepts that rely on scale to justify weak unit economics. Expansion plans built on optimistic assumptions are being heavily discounted. Growth projections without margin resilience are being stress-tested hard.
Quietly, many owners are realizing they built size, not strength.
In franchising, this matters even more. Systems that once sold growth narratives are now being judged on their ability to protect franchisee profitability. Operators are asking tougher questions before signing on. They want to know what happens when labour spikes, rent escalates, or sales flatten. They want proof the model works under pressure—not just in ideal conditions.
The franchisees performing best in this environment aren’t chasing headlines. They’re doing the unglamorous work: tightening labour models, adjusting pricing with intention, understanding contribution margins at the unit level, and making decisions based on cash flow rather than optimism.
They’re not anti-growth. They’re selective about it.
If the margins aren’t there, growth simply spreads the problem across a larger footprint.
In 2026, the businesses that survive, scale responsibly, and secure financing won’t be the ones growing the fastest. They’ll be the ones that can explain their margins without hesitation. The ones who understand where profit comes from, where it leaks, and how it behaves under stress.
Growth still matters. But it no longer leads the conversation.
Margins do.
And the operators who understand that are the ones building businesses that last.
