Franchising Outlook – 2012


Work for Yourself, But Not by Yourself  |  Consider the Rewards of Franchise Ownership  | 

Published in the March/April 2012 issue of print Search & Employ®  |

If you are beginning to think that franchises are taking over the American marketplace, then you have probably been paying attention to which businesses have been popping up on the corner in nearly every town. The “Mom and Pop” stores that have historically dominated America’s brick and mortar marketplace are increasingly being replaced by franchises.

Hearing the word “franchise” may bring an image of McDonald’s or Burger King to mind. And, while quick-service restaurants do account for a large number of franchises, there are opportunities for everything from helping people plan the vacation of a lifetime to painting houses. Just about every business category has a franchise opportunity.

But big corporations are not running “Mom and Pop” out of business. Rather, the Mom’s and Pop’s who used to own “Bob’s Hardware” and “Mary’s Hobby Shop” are behind the franchise frenzy. The Mom’s and Pop’s are combining their years of business smarts and savvy with established franchises and the business systems, marketing, and advertising support they provide. Franchisees also enjoy the rewards of established, recognized brands and excellent training. And for men and women new to business ownership, franchising also offers invaluable lessons in building a business from the ground up.

Strike while the iron is hot

While the economy is improving, it is still not yet back to full speed. So it might seem that now is not 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 unemployment lingers, many decide to utilize their knowledge and experience by going into business for themselves. During the recession of 2001-2003, the number of personal businesses increased from 16.9 million to 18.6 million – and the most recent recession followed the same trend. 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.

What about risk?

Starting any business comes with a certain level of risk and the possibility that financial goals will not be realized. Statistics indicate that many small businesses do fail. However, becoming a franchisee decreases those risks. According to the International Franchise Association (IFA), the largest trade group in franchising, only 10 to 12 percent of all retail and service enterprises are franchises, yet they account for more than fifty percent of the revenues within their industries.

Said another way, even though franchises are outnumbered by private business owners in the retail and service sectors, their earnings account for over half of their respective industries’ total revenue. These percentages, coupled with the advantages of having a franchise’s backing, make becoming a franchisee a less risky proposition.

Growth forecasts

In late 2011, the IFA forecast a 1.9 percent growth in the number of establishments during 2012. The IFA also expects franchise businesses to hire more people and sell more goods and services. Lodging, business services, and personal services will see the most growth in 2012, the trade group said. Quick-service restaurants will to continue to make up the bulk of franchise establishments in operation at 21 percent. They are also likely to provide the greatest number of jobs – 37 percent – of all franchise categories, and to generate the most revenue, 26 percent.

The IFA used different research firms for its recent reports. PricewaterhouseCoopers prepared the 2011 forecast, released in January 2011; and IHS Global Insight, a unit of IHS Inc., prepared the 2012 forecast. IHS based its outlook on modest improvements made over the past year in small-business lending, as well as signs that the United States economy is on the mend.

 

About the Author

This article was written by Jay Myers