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Who is franchising out there and how are they doing? New survey sheds some light

Who is franchising? The majority of franchise business owners are over 50 years old, but millennials are beginning to show interest. That’s  according to findings of a new national survey.

“Baby boomers still represent a majority of people we encounter pursuing franchise opportunities,” said David Nilssen, CEO of small business financing company Guidant Financial. “These are hardworking people who have spent 20+ years in corporate America leading teams, departments, and business units – and are now ready to put that experience to work in their own small business.”

These franchise business owners are most likely to own a health, beauty or fitness franchise, the survey found, followed by food and restaurant franchises, business services, general retail and home services.

Guidant and online credit marketplace LendingClub teamed up to survey more than 2,700 current and aspiring small business owners across the nation. Hera are some more of their key findings:

  • 62% of franchises are owned by baby boomers; 30% are owned by GenXers; and 8% are owned by millennials.
  • A man’s world: Just 21% of franchise owners are female.
  • When asked about their happiness as business owners, franchise owners averaged an 8 on a 1 to 10 scale (10 being the happiest), matching the national average of small business owners.
  • 85% of franchise owners have a degree beyond high school or a GED. While 47% have a bachelor’s degree.
  • 54% of franchises have been in operation for up to three years. 22% have been open for four to seven years. 24% have been open for over eight years.
  • Rollovers for Business Start-ups (also known as ROBS or 401(k) business financing) (39%), Cash (22%), and SBA loans (13%) are survey respondents’ three most-used forms of franchise financing.  SBA loans grew significantly from the prior year, with a 26% increase in usage.
  • When asked what they would do with additional capital, the biggest desire of franchise owners was expansion, followed by marketing and advertising, staff, equipment, and administration work.
  • The majority of franchises were acquired for over $100,000, at 68 percent, a 15 percent increase from the prior year.
  • Profitability of franchises grew 9% year over year. The majority of franchisees surveyed are profitable, at 66%.
  • Lack of capital or cash flow issues are cited by 24%, and it was the top challenge for franchized businesses. Recruiting and retention was the second biggest challenge for franchises, at 21%.  Other top struggles include marketing and advertising (16%), administrative work like bookkeeping or payroll (12%), and time management (12%).
  • 14% more franchises reported challenges with recruiting and retention of employees compared to the previous year. Perhaps because of those increased challenges, 16% more franchises would invest additional capital into staff, year over year.

Still, franchising isn’t for everybody, and there is a lot of diligence that should go into the decision-making process, said George Ray, a consultant at Florida SBDC at FIU, the small business development center with FIU’s College of Business.

“The advantage of franchising is you are in business for yourself – but not by yourself. You have a recognizable name brand and a standardized business process behind you in a proven concept that is profitable,” said Ray, SBDC at FIU’s expert on franchising, in a recent GrowBiz post. “The thing you need to bring to the table is hard work, team building and camaraderie.”

It can be a very good opportunity for veterans because they can qualify for 80% financing from the SBA and some franchises will eliminate or discount fees for veterans, he said.

In a recent post, GrowBiz explored the pros and cons of franchising along with some of Ray’s tips about researching franchises. Read it here to learn more.

Please send GrowBiz topic suggestions and feedback to GrowBiz@FIU.EDU.

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