Positive Trend Outlook for Franchising Industry

 In Franchising, Small Business

The Franchise Business Economic Outlook report projects that the franchise sector will grow faster than the overall economy next year. That’s important information for entrepreneurs and small business owners, who are often faced with a high level of risk when attempting to launch a business or franchise. The year 2018 looks to position companies for growth and innovation.

The study, conducted by IHS Markit, looked at many aspects of the general business environment, including current retail sales, employment data, output productivity, small business optimism indexes, and historical data. Two very key outcomes highlight the value of moving toward a franchising method of operation. Since 2001, franchise businesses handled times of recession better than other businesses and they recovered faster, showing a steady degree of resilience year over year.

Franchise Growth Expected

Currently, in 2017 franchise establishments have grown close to 2 percent with franchise employment growing 3.1 percent compared to businesses economy-wide that are at a 1.6 percent growth rate. Additionally, the output of franchise businesses is projected to increase 5.3 percent to $711 billion. Franchise businesses’ gross domestic product (GDP) is also expected to exceed the growth of U.S. GDP as it has for the past four years.

Small business owners looking at the franchise sector should be trying to leverage these results and the economy in 2018. This will require boosting your bottom line by strengthening your franchising efforts.

This necessitates a shift in focus to help develop an established brand. Franchising World’s November issue offers four tips from the Franchise Education and Research Foundation to transition into a successful franchisor. Outlined below are steps to help emerging franchise concepts expand into critical growth opportunities.

Create a sustainable framework. Launching a new franchise concept starts with putting time and resources into the backbone of the business. This means getting the core things right to help prevent premature closings and operational mishaps later down the road. Savvy franchise owners know that one of the keys to their success is having strength in numbers, which will come from attracting franchisees based on a sound and professional foundation.

Think operational infrastructure. The research shows that system-wide profitability is strongly influenced by how well run and smoothly your franchise functions. This requires streamlining communications among departments, utilizing integrated software, provide benchmark tools and maintain compliance throughout all systems and practices.

Part of your infrastructure depends on the quality of your vendors. Put in place a complete vetting process to find the best partners to work with. Look at vendors as a long-term investment and not for their initial price tag. You need dependable vendors that have the ability to adapt as you continue to innovate and evolve your brand.

Focus on unit level economics. Base compliance best practices on unit level economics such as new unit build out costs, operating margins, etc. to drive the most cost-effective development. Also use level economics to create benchmarks and publish them, including how they are measured. Then make progress against those benchmarks into company goals and compensation.

These are also the numbers you’ll use to present the investment opportunity to a potential franchisee. Unit level economics present a clear picture and are your strongest selling points for demonstrating your proof of concept, strength of brand and local scalability.

Plan ahead. Ask yourself the hard questions like — What challenges do you see ahead in the next five to 10 years? How is your industry expected to perform over the next several years and down the road? You’ll need a vision to proactively prepare for what issues may affect your brand or industry. A limited budget should not stop you from creating potential action plans now that you can reference when or if needed later. This provides the framework to help your team more quickly and efficiently execute tasks and get back on track should issues arise.

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