2013 Franchise Industry Analysis

Franchise industry experts are looking at 2013 as a year of growth and change for franchisors and franchisees, and what they all agree on is that industry players …

Franchise industry experts are looking at 2013 as a year of growth and change for franchisors and franchisees, and what they all agree on is that industry players should be read for what’s coming. Consulting firm FranNet says the industry is set to grow as fewer U.S. corporations hire and former executives search for independent opportunities. New tax rules and more competitiveness to take small businesses global will create some new challenges for franchisees, as will stronger demands for better customer service from buyers and health benefits from employees. The good news is that technology services are improving and should make things easier for franchisees. For more on this continue reading the following article from TheStreet.

From growing a franchise to entering the cloud to purchasing a tablet computer, here are the seven best trends for small businesses this year.

1. Franchising as a career alternative is set to explode.

Franchise consulting firm FranNet saw business booming in the latter half of 2012. As of December, the company expected to finish the year at an all-time high, with about $14 million in gross revenue, up 44% year over year. FranNet had a 30% to 40% increase in clients looking to open their own franchise, says president and COO Jania Bailey.

The company expects 2013 to be another record year.

"We do not foresee a surge in hiring from corporate America," Bailey says. "We expect the high unemployment to continue due to the uncertainty of new regulations, tax issues and mandated health care. Many former executives are realizing that they will not have the job they have been looking for over the past several months. These executives are turning to franchise ownership as a career alternative."

There is also a lot of interest in franchising from younger people due to the lack of jobs. "These young people are getting out of college and cannot find employment. We see a lot of parents exploring franchising for their college graduates," Bailey says.

The International Franchise Association is not quite as optimistic. The trade association predicted the number of franchise establishments in the U.S. will increase by just 1.4% in 2013, short of the 1.5% growth in 2012, from 746,828 to 757,055 units.

Franchise output is expected to rise 4.3% this year to $802 billion, down from 4.9% growth in 2012, according to the IFA.

Franchisors and prospective investors are cautious given the turmoil in Washington as well as a mediocre macroeconomic outlook, the IFA says.

"The basic indicators of the health of the franchise sector will show a slight slowdown," the IFA said in December. "Yet the franchise sector will continue to do well within the industries where franchise businesses are concentrated."

To be sure, financing also continues to be a challenge, Bailey says, particularly for high-end concepts, yet "we have seen lending start to loosen in many areas of the country and we are hopeful this will continue to improve," she notes.

2. Are you prepared for the 1099-K?

While the Internal Revenue Service took measures last year to ease burdens placed on small businesses by 1099-K filing requirements, that form is still causing loads of stress.

"Small-business owners need to be prepared for the 1099-K form. It shows what their revenue for the past year has been. If the revenue figures reported by a business in their tax return do not match the 1099-K, it is a trigger for the IRS to issue an audit. As we all know, audits are no fun! So it is crucial to make sure your tax return numbers match your 1099-K," Outright.com CEO Steven Aldrich says.

Additionally, starting this month, payment processors have to withhold taxes at 28% for any small business that does not have a tax identification number. This is because they can’t issue 1099-Ks to people without TINs, Aldrich says.

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"As we can see, the 1099-K is just as crucial in 2013 as it was in 2012. It is imperative that small-business owners keep track of it and ensure their records are in order," he says.

3. Going "glocal."

The term "glocalism" means the adaptation of a product or service to each location or culture in which it is sold. Glocalism also signifies how regional businesses can be altered by events that take place far away," according to a report by Colloquy.

"The country’s sluggish economy and ongoing stagnation have slowed growth, particularly in the food-service industry, and also profitability, as customers demand more for less. It’s harder to increase sales in the U.S.," says Andy Axelrod, president of Love and Quiches Desserts in Freeport, N.Y.

"The flip side is that the weaker dollar is good for exporting, which is booming. For companies such as mine that have an active exporting division, this is a continuing and growing opportunity in the face of a lackluster domestic economy," Axelrod says.

Going glocal presents challenges as well as opportunities.

Tracy Benson, CEO of On the Same Page, a consulting firm, says companies doing business globally need to invest time and energy to understand how to make their products and services relevant to their customers in specific countries.

The thinking also applies to global workforces. "Understanding local needs, customs and perceptions allows leaders to customize changes, processes and initiatives that resonate with the people carrying them out," Benson says.

4. Health = wealth

Changing demographics and rising health-care costs have created a health-and-wellness economy. What separates aging baby boomers from previous generations is that they will live for a much longer time and continue to be a viable part of the spending economy.

Companies are already nudging and rewarding employees to live healthier by implementing wellness programs.

The trend also creates opportunities to partner with retailers and brands to support healthy customer behaviors with related rewards for small businesses, a Colloquy report says.

Customer initiatives can, for example, offer access to a free tai chi class or a coupon for calcium supplements, Colloquy says.

5. Customer service gets back to the basics.

Jerry Nettuno, founder and CEO of Schedulicity, a tool that allows small businesses to offer online appointment scheduling, says "old-fashioned customer service" will once again become en vogue for small businesses that are supported by digital tools.

During the rocky economic environment of the past four years, small-business owners turned to risky, and untested, marketing methods, such as partnering with daily deal companies, in an attempt to garner new clientele," Nettuno says. "In doing so, customer service began to take a back seat to customer acquisition."

This year, there will be a "steady return to traditional, old-fashioned client service, empowered with new digital tools, such as mobile scheduling and coupons, online sentiment tracking and mobile credit-card processing," he says.

The tools will expedite non-core business functions and allow service professionals to focus 100% on delivering great client service, he adds.

Dan Wernikoff, senior vice president and general manager of Intuit’s (INTU) Financial Management Solutions division, says more small businesses will use customer feedback to drive the bottom line.

"With the presence of more social media channels than ever, in 2013, small businesses will start using customer feedback gathered through Facebook, Twitter and others, to influence business decisions. By harnessing the power of their networks, small businesses will be able to make small- to large-scale changes to give their customers what they really want," Wernikoff says.

6. Major clouds ahead

"The businesses that were up and running shortly after tornadoes and hurricanes were those that did most of their business online," while those that had their information stored on computers in their offices lost nearly everything," says Barry Sloane, CEO of Newtek (NEWT). "Look for businesses and families to put most of their critical information online where it’s safe and easily accessible."

According to the IBM 2012 Tech Trends Report, which surveyed 1,200 professionals who make technology decisions for their organization, nearly two-thirds of respondents plan to increase their company investments in cloud-based technology.

"We expect cloud to become even more ubiquitous among [small businesses] over the next year," says Ed Abrams, vice president of marketing and strategy for small businesses at IBM (IBM).

More and more, small businesses are seeing the cloud as a way to grow business and access advanced technologies that once seemed affordable only for larger competitors, Abrams says.

The tools can be delivered with so-called usage pricing models, which means small businesses don’t have to pay for the cost of the software upfront and can essentially rent these advanced tech tools on a monthly or annual basis, Abrams says.

Small businesses will be armed with "insights and capabilities once only available to corporate giants, creating new ways to operate more efficiently, find new customers and improve bottom-line results," he says.

Additionally, by implementing a cost-effective, flexible, scalable platform, businesses can shift budget and resources to more strategic business investments.

"All of this is critical over the next 12 months as [small businesses] look to drive their own business security and growth, and as they look to differentiate themselves in an increasingly crowded marketplace," he says.

7. Tablets will become must-have devices for small businesses.

Mobile technology in general, but specifically tablets, like the Apple (AAPL) iPad mini and Google’s (GOOG) Nexus 7, will be a big priority for small businesses in 2013.

"While mobile technology and solutions have taken center stage in 2012, the prevalence of tablets in 2013 will alter how small businesses manage day-to-day tasks," according to Intuit.

According to a recent Intuit survey, about one in five entrepreneurs would like a tablet for their business.

"Leveraging tablet apps that can complete multiple tasks, such as accepting payments on the go, creating invoices and reconciling [accounting] books, will help small businesses save time and money in the new year," Wernikoff says.

This article was republished with permission from TheStreet.


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