Franchises Seen as Path to Financial Independence

Franchisees have different reasons for getting involved in their business.  Some believe that owning a franchise is a path to financial independence.  Others feel they need more control in their lives and that owning a business provides this control.  For others, it may be the need for greater flexibility.  And yet others may feel that the new business is complementary to an existing business.

In an effort to better understand these reasons, the National Franchisee Survey asks respondents why they first got involved in franchising.  We believe that the first step to understanding franchisee satisfaction is to understand the reasons for operating a franchise.

The most common response to this question, by far, is that individuals perceived franchising as a path to financial independence.

We looked closer at this by considering the number or years a franchise has been in operation, the gender of respondents, ethnicity, region of the country and other criteria.  Regardless of the breakdown, financial independence remains the top response for each and every category of respondent.

The two tables presented here are typical of others that were reviewed for this article.  In all instances, over 50% of respondents cite a desire for financial independence as a reason they first got involved in franchising.  Depending on the correlating criteria (ethnicity, region of country, years in operation, etc.), the percentage of respondents citing a desire for financial independence exceeded 70%.

Looking deeper, there are some subtle differences noted by correlating data between two independent questions.  These differences suggest possible trends that we hope to follow in the coming years.  The responses we have seen suggest that there are differences between what men and women perceive to be important.  More women, for example, state financial independence as being a reason for becoming involved in franchising.  They also report flexibility as the second most important reason.  In contrast, men are more likely to consider franchising as a solution to being unemployed or as a way of having greater control.

Looking at this information based on the number of years a franchisee has operated their business presents quite different information.  Interesting, if not yet definitive, is that franchisees in operation for “1 to 4 years” and “10+ years” report similar percentages for three of the five reasons cited.  These two time periods roughly correspond to the current and last economic slowdowns in the USA.  It may also be relevant to note that franchisees in business the shortest period of time (under 4 years) are less likely to report either unemployment or greater control as reasons for getting involved in franchising.  We anticipate reporting on this trend as the economic climate improves to determine if these similarities are consistent during contraction and growth periods in the economy. 

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Perry Shoom, FranchiseFacts
Capturing the franchise experience!

Franchisee Survey in progress at www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!

Understanding the Franchise Experience blog can be found at franchisefactsusa.blogspot.com

Time to Profitability Shorter in Less Rural, More Populated Areas

Time to Profitability Shorter in Less Rural, More Populated Areas

 (Newer franchisees taking longer to become profitable)

It is often said that the most important criteria in determining success for a local business is location. What this means, however, has always been subject to interpretation.

A downtown business may have lots of potential customers but also lots of competition, high rent and more staff to service these customers. A rural business may have fewer potential customers, less competition and fewer fixed costs such as rent. Success depends on how a business is able to balance its revenues and expenses to produce the single factor that defines viability – profit. While a successful business involves many qualitative factors not measured in the National Franchisee Survey , we are able to look closer at some demographic information.

For businesses in operation 10+ years, one third of respondents state that they reached profitability in less than one year. Over 50% state that they reached profitability in less than three years. This is a dramatic contrast to newer franchises where less than half report being profitable in the same period of time. The more recently a business has opened, the longer it appears to take for them to achieve profitability. As a basis for comparison, Table 1 includes the percentage of stores not yet profitable based on years in business. As expected, this percentage decreases over time.

Franchises located in population centers of 250,000+ (Table 2) report achieving profitability in a much shorter period than those in smaller population centers. Frequently, these larger population centers are more costly areas in which to operate and often have more competition. Nevertheless, these operations report a much faster time to profitability.

Likewise, we found that franchises located in rural areas (Table 3) had a longer time to profitability than their urban and suburban counterparts.

Despite what can be assumed to be higher operational costs and cash flow requirements, it appears that franchises located in more urban and higher population centers took considerably less time to become profitable than those located in smaller/rural areas.

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FranchiseFacts  – Capturing the franchise experience

Perry Shoom, FranchiseFacts
Capturing the franchise experience!

Franchisee Survey in progress at www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!

Understanding the Franchise Experience blog can be found at franchisefactsusa.blogspot.com