The U.S. economy is decidedly downbeat, and that may make it the best time for someone with an itch to start a business to look at snapping up a franchise.
The startup costs for the popular Subway, for instance, run between $78,000 and $238,000, while a Circle K convenience story can be anywhere from $161,000 to $1.4 million, depending on the size and location. The cash outlay, though, is offset in most cases with the strength of a well-known brand and culture of expertise in supplying and managing the operations. If you can have the cash or can get the credit, the security blanket can be reassuring.
“Historically, franchising has seen growth during down economies,” explained Alisa Harrison, Vice President, Communications & Marketing of the International Franchise Association, a membership organization of 1300 franchise companies. She points out that in the five years following the recession of 2000-2001, the industry created more than 140,000 new businesses and 1.2 million new jobs and grew at 18%--a faster pace than many other sectors of the economy.
In 2009, however, the story may not be as sunny. At least not in the short-term.
PricewaterhouseCoopers’s Franchise Business Economic Outlook for 2009 forecasts the number of franchise outlets will decline by 1.2 percent, from nearly 865,000 to less than 855,000. A preliminary study by FRANdata, a firm that specializes in franchise industry data, said jobs in franchise businesses are expected to fall by 2.1 percent, for a loss of 207,000 jobs. The least vulnerable is the restaurant sector, expected to have a small net increase in units (1.5 percent and 1.3 percent respectively). Automotive, retail food/ products and services are the most likely to be hurt.
The silver lining here is that as credit markets stabilize, many in the industry see opportunities for growth. The IFA is implementing a Five-Point Economic Recovery Plan that aims to leverage the strength of franchising to stimulate economic growth.
The group plans to increase the amount of credit available to franchise businesses by strengthening secondary markets, increasing access to capital by changes in Small Business Administration loan programs, reduce tax burdens in the tax code, make small-business health insurance more affordable and increasing support for veterans as small business owners.
“If people have the financing or able to get financing, now is a great time to get into franchising,” Harrison said. “Compared to starting your own business from scratch, franchising provides a proven system, training and marketing and advertising support. However, all prospects must do their homework regardless of the economy.”