Optimism Driving Franchise Growth

Franchise businesses are helping to drive the U.S. economy’s recovery, according to new reports from the International Franchise Association.

An improvement in small-business optimism is leading entrepreneurs to franchises, says IFA President and CEO Steve Caldeira. The IFA expects that franchise establishments will increase by 1.7% in 2014, .3% faster than the pace of growth in 2013.

Franchise employment is also predicted to grow by 2.6%, while the output of franchises in nominal dollars is expected to increase by 4.8% in 2014.

While much of the growth is expected to come from the restaurant and professional services industries, Caldeira says health care will also be a bright spot for the industry.

“Companion care, in-home assisted living … there are 10,000 Baby Boomers turning 65 every day,” says Caldeira, describing the opportunity for franchise owners in the health-care space.

Caldeira notes that franchises are outpacing the U.S. economy as a whole, but says taxes and regulatory policies are putting a damper on franchise-establishment growth.

“We’re still working through health-care implementation, there are high energy prices and many saw their taxes go up,” says Caldeira. “These franchises are independent operators, so they file their business income on personal tax returns … it’s been a tough slog.”

The lending climate, though improved, is also doing no favors to would-be franchisees.

The IFA predicts a demand for 73,800 unit transactions in 2014 – a 12.4% increase over 2013. But to satisfy this demand, the organization says $29.4 billion in lending is required.

“[L]enders will not fully meet franchise borrowing demand. FRANdata projects that of the $29.4 billion needed, banks will only make $28.1 billion available. This means a 4.4% shortfall in the supply of lending capital, which will result in 3,200 unit transactions not being financed,” according to the IFA.

Caldeira points out, however, that this is a significant improvement over 2010, when there was an 18.6% lending shortfall.

Franchises are gaining in popularity because they provide time-tested and proven business plans, says Caldeira.

“Increasingly folks are turning to franchising as a way to be in business for yourself, but not by yourself. I call it ‘formula entrepreneurism,’” says Caldeira. He says these businesses provide a lower-risk opportunity for aspiring business owners to learn the ropes of running a business.


FOX Small business Center

Posted in Franchise Basics, Franchise News.