All one has to do is drive down Main Street to see that franchises are popping up all over. The traditional “Mom and Pop” stores that used to dominate America’s brick-and-mortar marketplace have largely been replaced by a variety of franchises that cover everything from tree care to specialized foot-and-shoe services.
But before you conclude that corporate giants are putting those Mom’s and Pop’s out of business, consider this: Those franchises that are popping up everywhere are actually run by people just like the Mom’s and Pop’s who used to be the owners of “Roger’s Hardware” and “Betty’s Hobby Shop.” But now, the Mom’s and Pop’s have the backing of franchises that have already established success.
Don’t feel badly uniformed if you think of only Taco Bell or Subway when somebody mentions a franchise. Quick-service restaurants count for a lot of franchises. But there are franchises for everything from buying high quality olive oil to preparing houses for wheelchair ramps. Just about every occupation has a franchise tied to it somewhere.
There is an old saying about franchising – “In franchising you’re in business for yourself, but never by yourself.” This is certainly true whether you are selling Italian ice or cutting grass. Franchising lets people own their own businesses, but also gives them the backing of larger organizations when it comes to such factors as marketing and getting the best deals from suppliers.
There are plenty of other advantages to be being a franchisee. Perhaps the most important is learning how to start a business from the ground up. Other rewards include the use of established, recognized brands; training; ongoing support; and assistance with business systems.
No time like the present
While the economy seems to be getting better, it’s still not back to the pre-recession glory days when it seemed that every business was printing its own money. So it might seem that this isn’t the best time to start a franchise. However, small businesses – including franchises – actually increase in number during periods of weak economic activity. When people lose their jobs with large companies and cannot quickly find similar jobs with other employers, they often decide to go into business for themselves.
Even better, it is no longer considered a step backward to go from a big corporation to a small business. In fact, some corporations view small business experience as a plus because small business owners must focus on cash flow, cost containment, customer retention, and overall survival—all of which are also important to the corporations.
In recent recessions, the number of small businesses grew. For example, during the 2001-2003 recession, the number of personal businesses increased from 16.9 million to 18.6 million. The most recent recession followed the same trends. Why? The costs of starting and maintaining a small business – especially a franchise – are significantly lower than in past recessions. Specifically, the costs associated with computers, Internet access, commercial real estate, and office equipment have dropped.
On the flip side, starting any business comes with a certain level of risk, as well as the possibility that the business will not reach the goals its owners set. Statistics indicate that many small businesses will fail. However, becoming a franchisee increases the odds of success. According to the International Franchise Association (IFA), only 10 to 12 percent of all retail and service enterprises are franchises, yet the franchises account for more than 50 percent of the revenues of those enterprises. This means that, even though franchises are actually outnumbered in the retail and service sectors, they bring in most of the money. These percentages, coupled with the advantages of having a franchise’s backing, make becoming a franchisee a less risky proposition than going it completely alone.
Projections for 2014
According to a report prepared for the International Franchise Association Educational Foundation, real GDP (gross domestic product adjusted for inflation) will grow by 2.7 percent in 2014. Fueling the growth will a much smaller federal fiscal drag combined with continued improvements in consumer spending, housing, exports, and business-equipment investment. The report, Franchise Business Economic Outlook for 2014, was prepared by IHS Global Insight, an economic analysis and forecasting firm, and published in January 2014; it is available at http://emarket.franchise.org/FranchiseBusinessOutlook2014.pdf.
The report projects an acceleration of growth in consumer spending from a rate of 2 percent in 2013 to a rate of 2.8 percent in 2014. The implications for the franchise sector in 2014 are continued gains in employment growth and a modest acceleration of output growth.
The report bases its projections on data on franchises engaged in 10 broad lines of business:
- Business Services
- Commercial and Residential Services
- Personal Services
- Quick Service Restaurants
- Real Estate
- Retail Food
- Retail Products and Services
- Table/Full Service Restaurants
The report forecasts that the number of franchise establishments in the United States will increase by 1.7 percent in 2014, ahead of the 2013 growth rate of 1.4 percent. The report indicates that employment in franchise establishments will increase 2.3 percent in 2014, matching the pace of growth in 2013. The growth projection differs among industrial groups, ranging from a low of 3.6 percent in Retail Food to 5.5 percent in Real Estate.
The Outlook projects that Business Services will lead the franchise-business lines in employment growth and establishment growth, and will rank third in output growth. Real Estate will rank first in output growth, third in establishment growth, and fourth in employment growth. Quick Service Restaurants – the largest franchise-business line – will rank third in employment growth in 2014 and second in output growth.
According to the report, franchises to add nearly 200,000 jobs in 2014. The pace of employment gains will remain steady compared with 2013, but will continue to outpace total employment growth in the private sector by 0.3 percent. The number of franchise businesses in 2014 will rise by 12,915 in 2014, bringing total establishments to 770,368. The growth rate of establishments will rise to 1.7 percent in 2014 from 1.4 percent in 2013. This gain will continue to be in line with the growth of overall business formation across the economy.
Within the franchising sector, Business Services, Commercial and Residential Services, and Quick Service restaurants will drive job creation in 2014. With the fastest growth rate, the Business Services line will add 35,109 franchise jobs. Quick Service Restaurants, the largest sector in franchising, will create 75,596 jobs.
Veteran strategic initiative
The IFA also plays a big role in veteran hiring and veteran ownership. In 2011, the IFA launched Operation Enduring Opportunity to bring more veterans, wounded warriors, and military spouses into franchising. According to a report published in November 2013, that mission has helped bring 151,557 such individuals into franchising – 146,365 as employees and 5,192 as owners. The report, Veterans in Franchising: A Progress Report, was prepared for the IFA by Franchise Business Review, a franchise market-research firm based in Portsmouth, New Hampshire; it is available at www.vetfran.com/wp-content/uploads/2013/11/VetFranStudy_2013.pdf.
Operation Enduring Opportunity is built on the IFA’s VetFran strategic initiative (www.vetfran.com), which has worked since 1991 to make franchise ownership more accessible through member companies by offering financial incentives, training, and mentoring.
With the economy looking better and opportunities around every corner, this might be the best time for a while to become a franchisee. The opportunities are robust, the economics are right, and the resources are available. In short, things are looking great for anyone thinking about buying a franchise in 2014.