Tag Archives: IFA

Franchising 2016- More Projections

From 2010 to 2015 franchising has seen nothing but strong growth. Consider these two statistics:

– The economic production of franchise establishments has increased from $699 billion to $892 million.

– The number of franchise establishments has increased from 740,098 in 2010 to 795,932 in 2015.

2016 Projections

The International Franchising Association (IFA) projects continuing growth in its Franchise Business Economic Outlook for 2016 prepared by IHS Economics. It’s expected that the number of franchise establishments will grow by 1.7% this year: 

– Franchise output will increase by 5.0%.

– Employment by franchises will continue to remain strong with 3.1% growth.

– The six-year period from 2011 to 2016 (projected) realized a 2.7% growth which is 0.5% higher than all businesses economy-wide.

     A driver of this expansion will be the expectation that business spending will grow in 2016, boosting franchises that provide business services. In fact, business services franchises are projected to rank first in the growth in establishments and are tied for second in employment growth with a 3.3% gain.

Fast food and table service restaurants are also expected to expand nicely throughout 2016.

What this Means to a Prospective Franchisee

Franchising comes with built in advantages most prominent of which is that most mistakes have been bled out of the enterprise for prospective franchise owners. The business system a franchisee works with offers proven business concepts. This means in each of the main business disciplines like finance, marketing, sales and operations all of the processes and procedures have been refined to reflect what exactly is needed to make a successful business.

For example, in marketing, a franchisor will be able to explain to its franchisee what marketing works best (the internet, trade journals, industry shows, etc.) for the business. If the franchisee focuses efforts in those areas, odds are, they will pay off if executed well.

Another built in advantage is if franchisees struggle, they can turn to a support network that includes others that have faced and conquered the same issues. The accelerated learning curve very much works in favor of success for all franchisees.

The fact that the franchise industry as a whole is performing well for the US economy is a positive factor for the prospective franchisee to consider during the due diligence process. Simply put, it means the franchising concept works and is a viable way to make a living and in the process, possibly help others make a living as well.

Franchise Forecast 2016

The International Franchise Association’s (IFA) state of the industry report for 2016 suggests a positive outlook for the franchise industry.

Growth forecast concept up

The report, compiled by IHS Economics, a well-known forecasting firm, projects that the franchise sector will outperform the overall economy next year by posting a 5.1% gain against a projected US gross domestic product increase of 3.1%.

Out of the 10 major franchise sectors IHS tracks, the following six will see the most growth:

         Personal Services: This includes businesses such as spas, childcare, tutoring, hair salons and specialty niches like learning-to-paint franchises. The growth is tied to the growing disposable income of the aging population.

         Lodging: With travel increasing because of the improving economy, many of the major hotel and motel chain franchises are expanding across the US.

         Business Services: Business services including tax franchises, staffing companies and pack and ship stores are also in a growth mode fueled in part because of the increasing number of self-employed workers who do not operate out of offices.

         Fast-Service Restaurants: Consumers are looking for better quality food served quickly. Franchises in this sector include Panera Bread and many of the fast food chains. This category is responsible for 40% of franchise employment and has 20% of all franchisees.

         Retail Products and Services: Stores including 7-Eleven, Pearle Vision and GNC are all niche stores that are posed for more growth in 2016 because of the country’s economic growth.

         Residential and Commercial Services: Along with the increase in business in general, places that service businesses like Service-Master will also grow.

2016 appears to be another good year for the franchise sector. Along with the built-in advantages of the franchise system, franchising might be the right choice for many aspiring entrepreneurs.

The FTC and Franchising

Consider these powerful facts about franchising:

  • There are about 825,000 U.S. franchise business
  • 40.9 percent of all retail businesses are franchises
  • Franchising contributes 8.2 million direct jobs and 18 million indirect
  • Franchising adds $2.1 trillion to annual U.S. Gross National Product [GDP]

That’s the way it stands now but it was a long road getting there. Some of the most popular and well known franchises were created spanning many decades:

  • Howard Johnson 1925
  • Kentucky Fried Chicken 1930
  • Baskin Robbins 1948
  • Dunkin Donuts 1950
  • Burger King 1954
  • McDonald’s 1955

However, the success of these franchisors and others spawned some unfunded and poorly managed franchise ventures in the 1960s and 1970s. Some even bordered on fraud where money was taken from those eager to own businesses but a franchise was not delivered as promised.

FF pic IFA

The FTC and IFA

The federal government stepped in in the form of the Federal Trade Commission (FTC). Many regulations were added to bring full disclosure of what potential franchisees might be getting themselves into.

In addition, the International Franchise Association (IFA) was founded in 1978. It’s a reputable industry group where franchisor members use the IFA icon to show compliance with best practices and full disclosure. (In 1978, membership was only for Franchisors, today individual franchisees can join.)

Full Disclosure Documents

Also, the FTC created the Uniform Franchise Offering Circular (UFOC). This was updated in 2007 and is now called the Franchise Disclosure Document (FDD).

Along with the FDD, the business contract (Franchise Agreement) must also be included. Every franchise is governed by these two documents. In fact, if it’s not in the Franchise Agreement, it’s not an obligation.

 What’s in the Documents?

  • A legal description of the business & the term
  • Franchisee & franchisor obligations
  • All fees & payments
  • Detailed Lists of what is included with the fees
  • Statement of average unit sales (Item 19, optional)
  • Rights to transfer, expand & renew the franchise
  • Territorial rights
  • Signatures to the contract
  • Current & former franchisees list
  • Audited statement for the franchisor
  • And more…

Obviously, for potential franchisees these are must read documents. They are designed to make sure that everything is above board and the franchisee is getting good value at a fair price and that it’s something that can be verified.