The Current State of Franchising in the U.S.
IS IT THE RIGHT TIME TO LEARN HOW TO FRANCHISE YOUR BUSINESS?
Due to the challenged world economic state, companies are looking for expansion alternatives that require less capital. This is typical of an economic downturn, though is more significant this time around. Ironically, this presents a very unique opportunity for a franchise distribution model. Economic downturns have traditionally been the greatest periods in history in terms of entrepreneurial activity. When people are out of work, or under-employed, the entrepreneurial “juices” begin to flow more rapidly and new businesses are spawned at record rates. This opportunity allows entrepreneurs to move into those spaces that are left vacant in each industry due to the fact that existing companies are out of business, going out of business, or frozen at the switch and are not thinking about growth. Entrepreneurs willing to embrace new ideas are often able to continue to push forward and grow by creating new market niches.
A study was conducted by PricewaterhouseCooper in 2005 to examine the economic impact of franchising in the United States. At that time, there were 909,253 establishments in franchise systems opened and operating. These businesses directly provided 11 million jobs, an annual payroll of $278.6 billion and an output worth $880.9 billion. Franchised businesses provided more jobs in the United States in 2005 than the manufacturers of durable goods by 2.1 million jobs. Don Boroian, Founder and Chairman of Francorp, Inc. said, “The current economic environment is an extremely fertile field for companies to expand by utilizing franchising.”
Furthermore, given that technology has finally started to catch up to the innovative ideas that were invented years ago, it is far more efficient to provide guidance and support to franchisees. In fact, this technology opens the door for lower volume businesses to franchise. In the old days, if there wasn’t enough revenue in the core business to create a sizable royalty payment to cover monthly site visits plus a profit then the business simply was not franchisable. Now, even smaller businesses with lower volume can consider franchising. Businesses like these, often home based service businesses, seem to be the hottest segment currently in franchising. They typically offer a lower investment opportunity than traditional brick and mortar franchises, ramp up more quickly, can be monitored remotely by tracking information online, and do not require large bank loans, thus have more limited risk.