Perkins Law was excited to be a sponsor of the most recent Virginia Franchise Forum networking event at the Westwood Club. For the 8th year in a row, FRANdata presented its franchising year in review and forecast for next year. Senior research analyst Anya Nowakowski gave a fact-filled presentation and eagerly responded to questions from the audience about all aspects of the franchise industry. A few highlights and key points include:
Good News for Prospective Franchisees – Lenders across the board are showing more willingness to lend. Alternative lenders jumped into franchise lending to disrupt the market, but they are gradually losing their advantage as traditional lenders are investing more resources in technology allowing for quicker review, analysis, and turnaround of loan requests. Credit decisions are now more data-driven than ever before (as opposed to personal relationships and referrals). On a personal note, 401(k)/ROBS financing seems to still be a popular choice for many franchise start-ups, although not quite at the same level observed during the Great Recession a few years ago.
What Business Models are Being Franchised Most Successfully? Although franchising has become synonymous with fast-food restaurants (also referred to as quick service restaurants), FRANdata’s statistics reflect that only food-related franchises represent only 37% of the franchise industry. The other 63% of the franchise industry consists of a diverse mix of business models, including: (i) health and fitness (especially specialized fitness brands), (ii) maintenance services, (iii) child care and related services, (iv) business-related franchises, (v) automotive, (vi) lodging, and (vii) beauty-related franchises.
The median age range of today’s franchise owner is between 45-54, with less than 12% of franchise owners under the age of 35. Query why millennials are not a more significant force in franchise ownership today? Limited access to capital is likely a significant factor, but surely not the only explanation.
Multi-Unit Ownership is Growing – A majority of franchised business locations are owned by multi-unit operators.
The Trump Effect – Difficult to predict how the new administration’s agenda will translate to franchise owners, but with the new overtime rules “on hold” pending the outcome of a federal lawsuit in Texas and President-Elect Trump’s platform of reducing government regulation and interference with the business community, scaling back Obamacare, etc., there are some early signs that franchisees and other small business owners are in line to benefit from the new President’s policies and legislative agenda. Time will tell.
Slow but Steady Growth Projected in 2017 – Expect to see franchise systems focus more attention and resources on marketing and technology to create more seamless processes for franchise sales and recruiting, featuring a greater emphasis on education and transparency of relevant information.
A record number of franchise systems were registered in Virginia in 2016, and there is no immediate indication that those trends will reverse in 2017, so it is shaping up to be a positive, if unspectacular, year for franchising in 2017. As for Perkins Law, we will continue to offer a variety of flat fee packages for both franchisors and franchisees addressing the litany of transactional and compliance issues that arise in the context of a franchise relationship. Contact us anytime for assistance.