In a time of economic uncertainty, starting a new business can be scary. Entering into a market with the backing of a tried-and-true business model and brand recognition, however, can be slightly less nerve-wracking. Therefore, it's no surprise that for the first time since 2007, the number of franchise establishments is on the rise.
With the opening of more than 10,000 establishments in 2012, the franchise industry saw 1.5 percent growth, according to a 2013 outlook report from the International Franchise Association (IFA). The increase, which puts the industry back at its 2009 level, is only expected to continue.
Here are three reasons to consider franchising:
1. Franchises are job creators.
While the number of franchise establishments is still trying to reach its pre-recession levels, the 2012 employment within existing franchise establishments has surpassed the 2008 level of eight million jobs.
In the last year, the employment in franchise establishments grew by 2.1 percent, from 7.9 million to 8.1 million.
According to a 2007 Economic Census Franchise Report released in 2010, franchises make up more than 10 percent of U.S. businesses with paid employees across 295 industries.
2. In the last five years, franchise sales have grown by 13.9 percent.
Starting at $675 billion in sales in 2007, franchises have seen their sales grow to $769 billion by the end of 2012. According to the IHS report, sales are likely to increase by 4.3 percent during 2013 to a projected $802 billion.
3. Small business lending to franchises has increased by 13.4 percent for 2013.
According to a recent report by IFA, in 2013, franchises will be provided $23.9 billion of the $34.8 billion available to finance franchise unit transactions.
"The surge in lending to franchises since the recession reflects the continued popularity of franchising as a means for investors to go into business for themselves, but not by themselves. Many lenders often view franchising’s proven, structured, and scalable business model as a lower risk profile due to the support many franchisors are offering franchisees during the economic recovery,” said IFA President and CEO Steve Caldeira in a statement.
However, since franchise demand for loans has increased by 5.7 percent during 2012 there will still be a shortfall of financing. IFA estimated this shortfall to be 9.7 percent, or $2.6 billion, which might result in 6,400 franchise units not being created.