Franchise Industry Reports Second Month of Decline

The Franchise Business Index (FBI), a tool used to measure the franchise industry’s growth, showed a decline in July, making it the second month in a row the index has reported a downturn in growth according to a press release from the International Franchise Association (IFA). According to an IFA member survey, the release reports 80 percent of franchise business owners attribute slow or negative growth by a change in tax rates due to happen in January. The FBI reports that “weakness in consumer spending” also had a negative effect on the index results. The release quotes IFA President and CEO Steve Caldeira as stating that “The closer congress takes us to the edge of the fiscal cliff, the less confidence franchise owners have about hiring workers or purchasing additional franchises,” before asking Congress to keep current tax rates where they are for the long-term. The sentiments expressed by Caldeira had previously been echoed in a press release issued by the IFA on August 1, 2012, in which IFA Senior Vice President of Government Relations and Public Policy Judith Thorman stated that “Allowing current tax rates to expire would have dramatically negative ramifications on the ability of prospective and existing entrepreneurs, investors and small business owners to use the franchise business model to create jobs, own their own business and continue the growth of the franchise industry, which is responsible for one out of eight jobs.” Currently, the IFA is encouraging the U.S. House of Representatives to pass bill H.R. 8, also known as the Job Protection and Recession Prevention Act, which would keep the current tax rate the same for another year. In its letter to the House of Representatives, the IFA and Thorman cite a study by Ernst & Young that found the economy would decrease by 1.3 percent while eliminating 710,000 jobs if the tax rate rises. And while the FBI reported employment in the franchise businesses rising in July, the small business optimism component declined for the third month in a row. To learn more about the methodology and components the FBI measures, click here.