Spending, Lending Continue to Challenge Franchisees

Four years of depressed consumer spending have taken a toll on franchisees, who are less optimistic about sales heading into 2012 than they were one year ago. That’s according to a survey released today from the International Franchise Association Education Foundation.

In addition to concern about spending, lack of access to credit, combined with “negative rhetoric coming out of Washington,” are two factors stymieing growth, says respondents to the survey, which was conducted by HIS Global Insight for the IFA.

While 66.6 percent of franchisees said they expect to see moderate to significant increase in sales in 2012, that number is down from 76.4 percent in 2010. Concerns about tax reform and health care are other factors contributing to franchisees’ pessimistic outlook.

Even with the muted outlook, IFA president & CEO Steve Caldeira said that franchises’ expected growth is “outpacing projected growth in the overall economy, “ and projects the number of franchise jobs to grow 2.1 percent in 2012.

The less optimistic outlook, he concedes, comes from franchisees and franchisors’ frustration with “the slow pace of the economic recovery.”

Among the biggest frustrations: The lack of lending to small businesses.

“We’re not where we want to be,” with lending,” said Caldieira. “Lack of lending is a problem. But we’re trying to educate the lending community that franchises are the better risk.”

Caldeira said that in 2011, a “20 percent lending shortfall,” meant there were 80,000 fewer jobs created. “It’s not insignificant, and it’s especially difficult for those who aspire to franchising, when the market is so tight,” he said, referring to an IFA study conducted last spring.

“Hopefully, when we have this conversation a year from now, it will be a brighter outlook.”

High, long-term unemployment may be a contributor to the uptick in the number of franchises, said Caldeira. “Many of the long-term unemployed, who had good jobs, are capable of managing a business. They find franchises a scalable model that encourages entrepreneurship.” In addition, the IFA has made a commitment to bring in 75,000 U.S. veterans as owners and team members by 2014.

But recent health care reform policies and continued debates on tax cuts mean that new franchisees and veteran franchisors alike are dealing with a certain amount of economic uncertainty.

In fact, 22.2 percent of franchisees believe the economy will be worse in 2012, compared with 2011, which may be attributed to their expressed lack of faith in Washington.

Survey participants cited “a lack of support for pro-growth small business policies,” in Washington, as well as “uncertainty created among consumers and investors” because of political infighting, as hindering growth.

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