Franchises Expected to Outpace Other Industries in 2013 (Infographic)
The coming year isn't likely to be a home run for franchise growth, but it won't be a no-hitter either.
The number of franchise establishments in the U.S. is expected to rise by a modest 1.4 percent to 757,055 in 2013, according to a report released yesterday by the International Franchise Association (IFA). The industry grew by 1.5 percent in 2012.
Uncertainty about the economy and fiscal issues are expected to weigh on the franchise sector in 2013, but it is still expected to outpace other industries in terms of growth, according to the report.
The franchise industry is expected to add 162,000 jobs in 2013. That's a 2 percent increase from 2012 bringing the total to an anticipated 8.26 million jobs. According to their findings, the IFA said industry growth estimates would be greater if there were more clarity about the future of the economy, taxes and how the new health care legislation will be implemented.
"Right now the environment for taking risk is cautionary for prospective and existing franchisees," said Matt Haller, the IFA's vice president of public affairs.
Healthcare, in particular is a top concern. The nuances of the Affordable Care Act are still being ironed out and it is hard for businesses to get a handle on the expected costs of implementation. Many businesses are preparing for the worst. Indeed, 31 percent of the 72 franchisees surveyed, and 20 percent of the 112 franchisors surveyed plan to cut jobs to get under the Affordable Care Act's 50-employee threshold, according to the IFA Annual Business Leader Survey, conducted last month.
What will happen with tax rates is another pressing concern. Lawmakers have yet to come to terms on how to avoid the so-called fiscal cliff that the country is headed for. If Republicans and Democrats fail to reach a deal before the end of the year, there is concern that the multi-billion hit to the economy could bring on a recession.
Related: The Top 10 Franchises for 2013
Members of the franchise industry are also concerned about continued softness in lending. While there have been some signs that the credit crunch is easing, conditions are still weak. According to the IFA Business Leader survey, 52.9 percent of franchisees said the lack of small business lending continues to have a negative impact on their business, compared with 55.5 percent a year ago.
Stronger credit markets will be a big boon for the franchise industry, according to Mike Rozman, co-president of BoeFly, an online marketplace that matches small business borrowers with lenders.
"As credit access continues to improve, we'll have more franchise growth as a whole," he says.
See the infographic below of the IFA's findings.
Cheryl Winokur Munk is a freelance writer and editor in West Orange, NJ. She is a former reporter for Dow Jones Newswires and American Banker where she covered the financial services industry. She earned a B.S. in journalism from Boston University.