International Franchise Association Debunks Common Franchising Myths

Despite its 160-plus year history, the franchising industry is still not widely understood. Of the many misconceptions that exist about this industry, the most common are that franchised businesses are owned by a corporation and do not have the same local feel as a mom-and-pop shop and that franchising is limited to fast food establishments. Further, most people don’t realize just how big of an industry franchising is, and how much it contributes to the local and national economy.  

According to Stephen Worley, Senior Director of Communications for the International Franchise Association (IFA), “Franchise-owned businesses are a critical component of America’s economy, and tax relief, combined with regulatory reform, is creating economic and growth opportunities in the business community that have not existed for quite some time.”

Worley notes that after Congress and the Administration passed the Tax Cuts and Jobs Act in late 2017, franchise optimism skyrocketed.

“Franchise employment is forecast to grow 3.7 percent in 2018 after growing 3.1 percent in 2017, and franchise employment will continue to outpace economy-wide employment growth,” said Worley.  “Currently there are 733,000 franchise establishments that provide 7.6 million jobs in the United States. The output of franchise businesses in nominal dollars is at $674.3 billion. The gross domestic product (GDP) of the franchise sector is currently at $404.6 billion, contributing approximately three percent of the United States GDP. Regulations have been trimmed, taxes have been cut, and, as a result, the franchise community has continued its economic momentum.”

That momentum is fueled by franchise owners operating their locations in the local community. Worley notes that when the average individual thinks of the Sport Clips* around the corner or the Dunkin Donuts they visit before work, they tend to think of those stores as a part of a huge corporate company run by a CEO far away.

“This is the most common misconception [about franchising] – the truth is that franchises are owned and operated by a local and independent franchisee,” he said. “These establishments are as local as the mom-and-pop shop down the street and are likely run by someone from the community. A franchisee is responsible for all day-to-day operations of their business, such as hiring workers and deciding wages. Your neighborhood franchise is a vital part of a community’s economy.”

The beauty of the franchising model is that it allows an entrepreneur to become small business owners and reduces risk with the support of a brand that is already recognized and proven to be popular. Worley adds that the ability to easily recognize a franchise store, restaurant or hotel from the outside guarantees consistency that the consumer expects, which allows for more people to start a business because there is less risk involved.

Despite all the evidence that points to the contrary, the franchise industry still has a lot of work to do to correct long-standing misconceptions. Worley notes, “To correct misconceptions, brands can emphasize the independence that potential franchisees will have when they open a franchise. One way is through policy, by urging their representatives in Congress to establish clear standards surrounding joint employment to protect the franchise business model.”