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The State of Franchising

SteveCaldeira-webAs we saw throughout the year of 2011, the political paralysis in Washington has created a less-than ideal environment for the creation of new jobs and establishments by franchise businesses. From the continuing negative implications of the new health care law, to the summer squabble over the debt limit, to the ensuing super failure by the congressional “super committee”, to the end-of-year fight over the extension of the payroll tax holiday, Congress continually endangered the creation of new jobs for the nation’s franchise businesses, threatening to undermine their long awaited recovery.

At the IFA, we represent more than 825,000 franchise establishments. The industry supports more than one out of eight jobs in the U.S. economy, and 12 percent of the private-sector workforce including restaurants, hotels, business and personal services, retail, health care, automotive, real estate and commercial and residential services.

After three years of restrained growth due to the recession and its lingering effects, franchise businesses show signs of recovery. In addition to projecting 168,000 new jobs, the IFA predicts an increase of nearly 14,000 new franchise establishments, an increase of $37 billion in economic output, and an increase of $21 billion in GDP from 2011 to 2012. IHS Global’s macroeconomic outlook forecasts real GDP growth of 1.8 percent and consumer spending growth of 2.2 percent in 2012.

These are modest projections for growth, yet franchising remains a bright light amidst a continued challenging economic and public policy environment for our members. However, our prediction will fall short if Congress does not continue to heed the concerns of our members for a pro-growth public policy environment.

The optimism of these projections is tempered by the fact that franchisors and franchisees are explicitly saying that political uncertainty over taxes will clearly impact their plans for new business formation and hiring.

According to the IFA’s Franchise Business Leader Survey, more than 81 percent of franchisees are opposed to allowing existing tax rates to expire, with more than 70 percent strongly opposed. Among franchisors, 68 percent are opposed to allowing tax rates to expire.

Survey participants voiced their less-optimistic outlook due to the frustration with the pace of the economic recovery and the lack of focus and execution on issues of critical importance to the small business community.

As we begin our advocacy work in 2012, we are urging both parties to work together to find constructive solutions to help get America’s economy back on its feet, allow small businesses to prosper and create the conditions for the hiring of new workers. IFA’s public policy focus will remain on comprehensive tax reform that lowers both the corporate and individual rates for our member companies. This is critically important, given the majority of our members file their business income on their individual tax returns. We’ll also continue to work on mitigating the potential impact and cost of the health care law through regulatory work at the various federal agencies dealing with implementing the law. The lawsuit challenging the legality of the individual mandate will factor heavily on the health care policy debate when the Supreme Court hears the challenges in March.

As these and other public policy issues play out in the midst of a presidential election year, what is most important is for lawmakers to continue to hear from the IFA and our members about the huge economic force our industry is within the U.S. economy. By continuing to raise IFA’s profile, through a robust government relations and public policy focus and agenda (including nearly doubling the number of FranPAC contributors and contributions over the past 18 months), proactive media relations outreach, and a first-rate professional development portfoilio of products and services, we will be able to steadily improve the business environment for franchise businesses in the new year, and beyond.
Thank you for all that you collectively do for the IFA and the industry and best wishes for a happy and prosperous 2012!

However, the rate of growth is far below the trends we experienced before the recession. Pro-growth policies out of Washington that provide certainty and clarity to the franchise industry such as comprehensive tax reform that lowers the corporate and individual tax rates and increases the flow of credit to small businesses will help put us on a more aggressive path of growth and job creation.

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