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Why Business Owners Are Bullish on Franchises

Photo by: Tammy Love Photography

Jennifer Ketels took a big gamble three years ago, in the midst of a lingering recession. She opened a new business: U-Top It, a frozen yogurt store in Redding, Calif.

Today, that business is thriving, while Ketels, a former Las Vegas ad agency owner, has sold four U-Top It franchises in Washington state and Northern California.

“I get five to eight people a week calling or coming into the store and asking about franchising,” she said. What she is hearing from those that are exploring the franchise space, she said, is that people are looking for a way to take charge of their work life.

“There's so much uncertainty in corporations right now, especially on the West coast and California,” she said. “It doesn't matter how good an employee you are; if you're working for someone else, for a corporation, there's uncertainty.”

The recession, she says, has in some ways been a plus for her venture. Leases have come cheap, and families who can no longer pay for costly vacations can still splurge on toasted coconut sprinkles on their frozen desserts. “I haven’t had to worry that much about the economy,” she says.

Job growth may be stagnant, with consumer confidencein the doldrums, yet many franchise owners share Ketels’ bullishness, according to a new survey of 2,000 industry leaders by the International Franchise Association.

“Franchising remains a bright light in a still-struggling economy,” says IFA chief Stephen Caldeira.

An IFA report released last week of a survey of 2,000 franchise leaders found that 56 percent of respondents said current business conditions are good — up from 38 percent in 2011. Moreover, 54 percent believe those conditions will improve within a year, compared to 33 percent in 2011.

Beth Becker, director of franchising for Sport Clips, which specializes in haircuts for boys and men, reflects this sunny attitude. Sport Clips, which opened its first store in Austin, Texas, in 1993, recently sold its 900th franchise, and, with a boost from radio and Internet ads, expects to hit 1,000 by the end of the year. “Hair just keeps on growing, so whether you have a job or you need a job, you’ll need a haircut,” Becker reasons.

The new optimism may help explain some unexpected growth in franchise output. The IHS Global Insight forecasting firm last week adjusted its 2011 predictions to account for a few improvements: Franchise employment is expected to increase to 2.2 percent, with 177,000 new jobs, up slightly from the original forecast of 2.1 percent in December, while franchises’ total output is now projected to rise by 5.3 percent, to $39 billion, up from an earlier projection of 5 percent.

"There has been just about no energy over the past couple years, but I’m really seeing it now." -author, "Become a Franchise Owner", Joel Libava

One indicator was adjusted downward, however. The new forecast projects that the number of franchise establishments will increase by just 1.7 percent, with 12,454 more units, reduced slightly from the December forecast of 1.9 percent.

But for some sectors, franchises are growing significantly faster than the industry average of 5.3 percent. Averaging closer to 6.1 percent growth are companies in commercial and residential services, such as Jani-King janitorial services; ServiceMaster and Mr. Rooter, for home maintenance; personal services, including Sport Clips, Supercuts and Great Clips; and home health care, such as BrightStar and Comfort Keepers.

Joel Libava, author of “Become a Franchise Owner,” has his own, informal measure of what he sees as an uptick in franchiser optimism. The number of people taking his free, online quiz to see if it makes sense for them to open a franchise has increased by nearly 20 percent over last year, he says, with up to seven or eight people a day sending him answers. “There has been just about no energy over the past couple years, but I’m really seeing it now,” Libava says.

Franchise leaders are even revealing improved hopes when it comes to access to credit, according to the IHS Global Insight survey. Nearly 38 percent report some improvement in their ability to get loans over the past six months, compared to 25 percent in 2011.

“Maybe it’s just that people are tired of being in the dumps,” Libava speculates. “They’re tired of waiting on the sidelines for something to happen, so they’re making something happen by themselves.”

It’s a lot like the appeal of the new yogurt franchises that let customers prepare their own servings. As Ketels, who currently has four new stores under contract, explains: “Americans want to be in control.”

Email us at SmallBiz@cnbc.com and follow us on Twitter @SmallBizCNBC.

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