First, the election. Then, the Fiscal Cliff. Now, as the nation faces the repercussions of the proposed sequestration, franchise and small business owners prepare themselves for what may or may not happen next. Here’s a look at the good, the bad and the undecided for franchise and small business owners across the U.S.
THE COULD GO EITHER WAY:
Several industry experts feel the sequestration could severely hit small business owners, which includes franchisees, harder than other businesses because of their dependence on the local economy and, in some cases, government spending.
Why is this a concern? Well, for the most part small businesses are specialists– they’re not the Proctor & Gambles of their communities. You would be hard pressed to find an accountant who also happens to share his office with the dry cleaning franchise he owns. Also, small businesses are often hired on a contractual basis for government projects. If and when government spending is significantly reduced small businesses contracts could be among the first to go. In turn, small businesses often have a harder time securing lines of credit. As we saw during the Great Recession, that becomes even harder when economic times are tough.
If the sequestration does happen, that could result in $35 billion in payroll costs and $50 billion in procurement expenses. Those added expenses could result in 1.4 million lost jobs for the private sector, half of which would come from small business and franchise owners.
Groups supportive to small businesses, like the Small Business Administration, would have to scale back programs turning away an estimated 33,000 small business owners looking for help and guidance.
On the other hand, members of the National Federation of Independent Business (NFIB), feel it is impossible to predict what will actually happen and that, most importantly, a large percentage of small businesses do not work in for or in concert for the government.
THE GOOD:
The Franchise Business Index (FBI), which indicates the health of the franchise industry, increased 0.7 percent in January, a 2.1 percent rise from January of last year. Nearly all components (listed below) improved.
In a statement released by the IFA, association President & CEO Steve Caldeira commented that, “The uptick in January is reflective of pent-up demand for growth felt by many franchisors and franchisees who held back on investments in the second half of 2012 because of the uncertainty surrounding the Fiscal Cliff.”
The IFA expects to add over 10,000 new establishments and 162,000 new jobs this year.
MORE GOOD:
Finding adequate sources of capital has plagued the franchise industry and other hopeful small business owners. Now, thanks to the dramatic increase in deposits, banks are more liquid and desperate for growth. (Aren’t we all?) Commercial and industrial loans were up 4.4 percent in the fourth quarter and up 16 percent overall in 2012. Competition amongst banks has made the loan environment more palatable for small business owners as bank loan rates decrease.