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The Franchise Economy

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The Franchise Economy

By FranchiseKing, Guest Blogger
Published: September 30, 2010 Updated: January 3, 2013

It sure does;t-fee- like our economy is improving too much. Lots of folks are still taking the wait and see approach.

Small business owners still seem to be pretty hesitant when it comes to expanding their businesses. Of course that translates into continued high unemployment.

If yo're out of work, currently, you know just how tight the job market is. This may be pushing you to'consider other options'

In the franchise industry, when the job market is solid, the amount of new franchise owners entering the franchise world tends to stay flat. When folks that are downsized can find a new job quickly, the 'career pain' threshold is minimal.

But, when folks get downsized, and they ca't secure a new job quickly, their 'career pain' level becomes pretty high, and that usually translates into the franchise industry gaining more new franchise owners.

However, this time around, things are a lot different.

This has been a deep and long recession. It has featured things like;

  • The GM bankruptcy
  • A residential real estate bust
  • The collapse of major banks and investment houses
  • A stock market correction
  • 10% + unemployment
  • The credit crunch

'm going to focus for a moment on the one thing that has stalled franchise sales the past couple of years; the credit crunch.

Now, ther's no shortage of people looking for'opportunities' But, there does seem to be a shortage of money to lend start-up franchises.

The banks seemingly have it, and the SBA, under the leadership of Karen Mills, has certainly stepped up to the plate with loan guarantees for banks.

Hopefully, the banks will start lending again, and folks can start new businesses...lots of businesses.

When the economy went south a few years ago, loans were plentiful for franchise start-ups. I was able to help a lot of folks (who were downsized) find franchises to buy.

The word has been out for over a year now concerning the lack of small business loan availability. Most people I talk to know that it may be tough to get a start-up loan. Some of them make the decision to tap into their retirement funds, to start a franchise business. (I'm actually ok with that idea, as long as there are lots of ducks that are in a row. Lots of ducks.) Read about * using your 401 (k) to buy a franchise.

I wonder if there are prospective franchise owners around who aren't even looking at opportunities, because of the credit crunch.

On the other hand, I know of several franchise brokers who are getting some of their deals funded. That's only recently, though. In general, they too, are a pretty frustrated bunch.

The US economy needs the franchise economy to improve. That's because;

  • If new franchises aren't selling, (or not getting funded) then buildings aren't being purchased and leased.
  • Business checking and savings accounts aren't being opened.
  • Business-oriented retirement and pension plans aren't being started
  • New vehicles aren't being leased or purchased
  • Inventory isn't being purchased
  • Business services aren't being purchased
  • New jobs aren't being created
  • Local communities aren't getting new tax revenue
  • Little League teams aren't getting sponsored

I'm sure that I left out several things, but you get the idea.

The point is this; the US franchise industry (and its growth) really impacts the economy in a big way.

According to the * International Franchise Association;

  • There are 909,253 franchised business establishments in the United States.
  • Franchised businesses provide more than 11 million jobs, or 8.1 percent of the national private-sector workforce.
  • Franchised businesses supply an annual payroll of $278.6 billion, or 5.3 percent of all private-sector payrolls in the United States.
  • Franchised businesses produce goods and services worth $880.9 billion per year, or 4.4 percent of private-sector output in the US.

As you can see, the impact on the US economy is huge.

If you're in a position to get into a franchise business of your own, maybe it's time to start looking around a bit.

Who knows, the banks may actually start to lend money by the time you find that perfect one.

If you decide to start looking around for a franchise, Business.Gov just put together The Ultimate Guide to Franchises. It's a great place to start.

You're going to need a business plan. Check out the resources at Business.Gov.

*Non-government link

About the Author:

Joel Libava

Guest Blogger

The Franchise King®, Joel Libava, is the author of Become a Franchise Owner! and is a franchise ownership advisor. He shows people how to carefully choose and properly research franchises.   

Comments:

Donald, Thank you so much for stopping by the Business.gov website, and commenting on this post. I appreciate the time you took to share what you feel is going on with some of the banks. I'm sorry to hear that you've made the decision to not grow your business. Best of luck, anyway. it sounds like you're used to lots of business success. Joel Libava
Credit has dried up for most small businesses because bank examiners now put extreme pressure on banks to document everything, discount everything, and push them to distrust their clients and customers.   Some examples of the changes in the last 18 months: -   You cannot use most real estate for collateral or for your personal financial statement.   In the past we all used real estate (private, commercial, and farms) as collateral.-   You cannot use most assets that are out of state on your personal financial statement without great scrutiny. (You can have all the appraisals you want, but if the bank can't own it through UCC filings your asset is discounted)-   Your accountant must provide or agree with forward looking statements on your business.   Most are unwilling to do this for fear of suit.   My accountant will not certify my forecasts for the next month, much less for a year out.-   Be ready to have everything relating to you scrutinized by every agency within the government to include the IRS, Homeland Security, etc.     Insidiously the government now checks every number against every number on your tax returns and other reported business activity (bank accounts, etc.).   This big brother approach has and will continue to slow the economy for the next decade and maybe permanently.   Things will all be accurate, but the economy will continue to grind to a halt for small businesses because they are forced to dovetail every government reported number like a large business.   By the way they have moved up to 50% of their activities off shore.-   Personal Financial Statements and Net Worth don't mean anything or very little to banks anymore.   Banks are forced by the government to make sure you account for every cent on your Financial Statement and as a result do not trust anything without a receipt, appraisal, or stamp of approval.-   Past Performance on Loans means very little to today's bank examiners who actually rule and control bank owners and officers.  The relationship I had for 30 years with a couple of banks is now mostly over.   In fact we don't relate at all or talk about growing business and they really don't want to lend money.   I don't care what our leaders are saying.   Banks do not want to lend money anymore because of the their risk free spreads and their pressure by examiners on existing loans. For over 30 years I have been a grow, grow, grow guy.   I always paid my banker, the government and all of my creditors.  I valued my employees and was responsible for making many of them shareholders or profit sharing stakeholders.    I have employed over 15,000 people in over 6 businesses where I was an owner or executive officer.   I was going to grow this year, but have changed my mind.   It just isn't worth it any more.   I used to borrow for all the growth related issues:   receivables financing, capital equipment, to start a new division or group, to start a new business, etc., etc.    Now I am retrenching like everyone else with the thought that the government is really the controller of all the capital today (except private) and I am getting too old for the hassles.    God Bless those of you who are a small business trying to grow today.   In addition to the normal challenges you absolutely face those above.   And my advice is if you have a choice is to slash your capital needs (especially those that must be borrowed from a bank) and plan on borrowing or seeking investors that are family, friends, or individuals.    Carefully conserve your capital and if possible look to overseas markets, labor, and possibly even banks for capital and sales.    It is possible to grow, grow, grow, but not so much in the U.S. anymore.    

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