The Buzz: Q & A w/ John Reynolds, International Franchise Association (IFA), Vice President, New Business Development, President, IFA Educational Foundation
The mission of IFA, founded in 1960, is to protect, enhance and promote franchising. IFA serves as a resource for current and prospective franchisees and franchisors, the media, and the government. IFA’s membership consists of franchisors, franchisees and suppliers.
Discuss briefly the ownership structure of a franchise, how does it differ from sole proprietorships or partnerships?
Franchising offers people – business owners – the opportunity to own, manage and direct their own business within the framework of an established system – or method – of operating a business. The franchisor establishes the brand and the operating system that the franchisees follow to provide products and/or services to their customers. In a franchising system, people are in business for themselves but not by themselves.
What are the pros/cons of owning an established franchise and/or franchising your existing business?
The advantages and disadvantages of owning a franchise are –
Advantages – proven methods and products, start-up assistance, on-going training and support, collective purchasing power, research and development, easier to obtain financing, affiliation with a well-established “brand”, sharing experience and synergy with other franchisees.
Disadvantages — may cost more (fees, royalties, advertising fees), lack of independence and freedom (must follow system), “brand” problems or problems of the whole chain may become your problems, breakdown in relations/trust with franchisor can cause legal problems.
What are the advantages and disadvantages of “franchising your business”?
Advantages – If the business can be systematized (cloned) it can be franchised. This allows the parent company to tap the capital, talent, motivation and hard work of others (franchisees), and bring the business to market faster and on a larger scale than if the company relied on its own financial and human resources. New marketing ideas and innovations can come from franchisees who are highly motivated and “vested” in the success of the business (eg., Egg McMuffin, Drive-Through Concept, Central Reservation System, etc.,)
Disadvantages – The franchisor can’t “fire” franchisees if they are not performing the way he wants. Bringing about changes within a franchise system, or correcting problems from under-performing franchisees, may take longer and involve more concensus-building within a franchise network.
What impact has the latest economic downturn had on the franchise industry? What trends do you see moving forward?
Below is an excerpt from IFA’s Franchise Business Economic Outlook for 2009 report, which was released on January 9th:
“The nation’s franchise businesses that employ millions of American workers and generate hundreds of billions of dollars of economic output are preparing for economic challenges in the New Year. The industry is expected to experience a decline in the number of establishments, jobs and economic output in 2009, according to a report released today by the International Franchise Association’s Educational Foundation. Despite this outlook, franchise business leaders remain cautiously optimistic about the prospects for their own businesses, the report found.
The Franchise Business Economic Outlook for 2009, prepared by PricewaterhouseCoopers LLP, forecasts that the number of business format franchise establishments will decline in 2009 by 1.2 percent, from nearly 865,000 to less than 855,000—a net loss of some 10,000 establishments. Jobs in franchise businesses are expected to fall by 2.1 percent, for a loss of 207,000 jobs. Overall economic output, the gross value of goods and services produced by franchise businesses, will likely decline by 0.5 percent—a loss of $4.2 billion in 2009.”
Coming out of the recession of 2000/2001 franchise businesses outpaced many other sectors of the economy, in terms of creating new businesses, employment, payroll and economic output. Once the credit markets stabilize, and consumer confidence is re-established, there will be a rapid growth in new franchise businesses. This has been the pattern of recovery from previous recessions.
In a survey of franchise business leaders, conducted last November, many see the challenges ahead but they also are “cautiously optimistic” about the opportunities for their own business. They believe in the entrepreneurial spirit of their franchisees and the fundamentals of the franchise business model as factors that will help them weather the economic storm.
Below are two links to the IFA website at www.franchise.org. The first link is a primer – “Introduction to Franchising” —
And the second link is the Franchise Business Economic Outlook for 2009.