Is Franchising for You? Go into Business for Yourself, but Not by Yourself
By David E. Omholt, a franchise advisor with Veteran Franchise Centers (VFC) – a RecruitMilitary strategic partner. VFC offers a free service to veterans looking to learn more about the franchise buying process and options in the market. Omholt is a Certified Franchise Executive (CFE) and a frequent speaker on the subject of franchising on talk shows, at industry conferences, and on college campuses. He has been both a franchise licensor and a franchise licensee.
Franchises are everywhere. The traditional “Mom and Pop” stores that used to dominate America’s brick-and-mortar Main Street shops have largely been replaced by a variety of franchises that cover everything from junk removal to finding someone the right cruise for his or her vacation.
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 “Jimmy’s Deli” and “Priscilla’s Toy Store.” 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 house painters to battery stores. 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 buy 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 2015
According to a report prepared for the International Franchise Association Educational Foundation, real GDP (gross domestic product adjusted for inflation) will grow by 3.1 percent in 2015. Fueling the growth will be faster growth of consumer spending and a pick-up in the housing sector. The report, Franchise Business Economic Outlook for 2015, was prepared by IHS Global Insight, an economic analysis and forecasting firm, and published in January 2015.
The report projects an acceleration of growth in consumer spending from a rate of 2.5 percent in 2014 to a rate of 3.4 percent in 2015. The implications for the franchise sector in 2015 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 1.6 percent in 2014, which is in line with the growth of overall business formation across the U.S. The report indicates that employment in franchise establishments will increase 2.9 percent in 2015, ahead of 2014. The growth projection differs among industrial groups, ranging from a low of 1.1 percent in Retail Food to 3.0 percent in Real Estate.
The Outlook projects that Quick Service Restaurants – the largest franchise-business line – will lead the franchise-business lines in employment growth and establishment growth, and will rank fourth in output growth.
According to the report, franchises will add nearly 250,000 jobs in 2015. The pace of employment gains will increase compared with 2014. The number of franchise businesses will rise by about 12,000 in 2015, bringing total establishments to 781,794.
Within the franchising sector, all of the categories will drive job creation in 2015. With the fastest growth rate, the Quick Service Restaurants will add 103,618 franchise jobs.
VETERAN STRATEGIC INITIATIVE
The International Franchise Association 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.
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 in a long time 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 2015.
By David E. Omholt