The United States Department of Labor reported on November 1, 2008 that America has lost 1.2 million jobs, many of these losses a result of layoffs of highly skilled, long-term employees. Worse than just empty cubicles, that is a lot of gifted people sitting in atrophy.
President Elect Obama, as well as most economists, acknowledges that small businesses are the backbone of the American economy. If corporate America can not create jobs for these talented individuals, perhaps some former employees will entertain free enterprise. But how does a former suit turn on a dime and start a business? Perhaps a franchise is the answer. Franchises allow new business owners to be in business for themselves, but not by themselves. For the first-time entrepreneur, having a safety net is smart—and comforting.
In the world of franchising there are 75 industries that a new entrepreneur could be involved in. Many of these are recession resistant, low start-up, service-based businesses. These characteristics are what are needed in this ever-changing, constricting economy. But, how does a former finance guy, for example, fit into a repair business? Easily! Good franchise companies are searching for former corporate types to run a business and be the CEO, not the technician.
A common misconception about choosing the right business is that entrepreneur must enjoy, or even have a background in, the product or service their new enterprise is providing. The fact of the matter is, though, that what entrepreneurs do on a day-to-day basis is generally very different and separate from the front-of-house goings on.
In fact, a statistic released by Guidant Financial Group, a leading provider of small business financing services, reported that 60 percent of their clients come from an executive or management background. Furthermore, the most popular business type for their clients to pursue is in the business consulting and services industry. Why? Because these budding entrepreneurs understand that the skills they brought to the corporate world are useful and, yes, lucrative in the independent business sector as well.
A principal benefit of small franchise operations is that they create local jobs. According to a 2007 study released by the International Franchise Association, franchised businesses generate more than 11 million jobs, with an annual payroll of $278.6 billion.
Although these “small businesses” may appear to be a giant step away from the corporate America most people relate to, this statistic shows that small business, in some respects, is corporate America. And, by starting a small franchise business of one’s own, recently let-go employees can take their future, as well as the future of the U.S. economy, into their own hands.
Many corporate refugees don’t consider franchising chiefly because they are not educated about business ownership, what help is availableto get started, and the numerous industry options that exist. Even so, the second, and larger, obstacle is obtaining start-up and working capital, especially in the current financial market.
Banks and the Small Business Administration (SBA) have always held that lending money to a start-up franchise operation is safer than lending to an individual small business. The good news is there’s money out there but it’s not as easy to come by as it once was.
Fortunately, large bank loans aren’t the only source for business capital. The current economic environment has proved the perfect atmosphere for alternative financing options to flourish. Chiefly, 401(k) small business financing has grown exponentially, mostly in-part to laid-off corporate workers finding that using money they have in their 401(k)s or IRAs to invest in their own business is both less costly and more lucrative in the long run.
Guidant Financial Group is among the few companies that offer this kind of alternative financing option alongside their other suite of services, and have found 401(k small business financing to be the most logical for most of their clients. As the entrepreneur’s IRA or 401(k) funds are accessed via investment (i.e. a private stock purchase) into the new business, the account holder gets to keep the tax-deferred status of their IRA, invest in a business they can control, and obtain the capital they need for the business without taking on a loan (meaning no monthly or interest payments). Win, win!
Other financing options that have sprouted up as viable alternatives to the big bank loan are unsecured loans (or personal loans), which require no collateral, and equipment leasing, which is another great asset-based financing option choice.
The fact is that 95 percent of all franchise units stay in business more than five years, which is about four years longer than a typical mom & pop start-up. Why? The systems are in place. In a great franchise company, the training is extensive and on-going. The marketing plan is tried and true. The mentoring, coaching and support is never-ending.
Advice to a new franchise buyer today is that they should vet the business concept against common sense. Make sure the product or service is a necessity and not a luxury. In addition, the concept should have a nice, long track-record and proof of its success. All of its battle scars and growing pains should be healed. One may want to confide in a professional franchise consultant as well. A good business plan and a great credit score are a must.
While, in reality, franchising may not save the entire economy, one can see the immense opportunity that comes along with entrepreneurship—both for the new business owner, and for the larger community. If just two percent of the 750,000 laid-off refugees started a new, small franchise business that is a needed service in their community it would amount to 15,000 little engines pumping life-blood into the economy. Moreover, statistically, service-based franchises employ 10 staff members per unit and provide 10 additional jobs indirectly that help to start, and then supply, the franchise. Today franchising credits almost 21 million jobs to its industry via supply companies. Additionally, individual franchise units across America account for 4.4 percent of the more than $880 billion in the United States’ economic output.
As a holiday present to the U.S. economy, it is possible to employ 300,000 Americans by New Years. Many would agree that this would be better than having 750,000 people watching the TV news, being depressed and unproductive, wondering if they will ever see their cubicle again.