Inflation, interest rate increases, and other economic factors aren’t dampening the growth outlook for franchisors, as 76.9 percent of C-level executives said they are confident their brand will meet its growth goals this year. That’s according to a new survey from financial technology company BoeFly, which helps franchisors qualify their applicants and also connects those candidates with lending options.
BoeFly created the quarterly Franchise Growth Confidence Index to assess franchisor executive confidence related to achieving their domestic growth goals. For the inaugural index, BoeFly surveyed nearly 700 franchisor chief executives, chief financial, and chief development officers across several industries including automotive, education, fitness, health and beauty, home services, restaurants, and retail.
“I have this view that franchisors are just optimists by nature,” said Mike Rozman, BoeFly’s CEO, of the nearly 77 percent of respondents with confidence in their growth outlook. “So I could see this tracking high across different economic times. I am a little surprised. I think there’s a lot of talk in the industry around economic headwinds in terms of inflation, interest rates, and a looming recession … but they are an optimistic group and I think this number supports it.”
Along with that optimism came a recognition that inflation is having real impacts, with 74.4 percent of respondents agreeing inflation negatively impacted their confidence level. And nearly half, 46.2 percent, said inflation forced them to change prospects’ financial requirements. A franchisee’s liquidity and net worth, said Rozman, are always important, and “we’re seeing brands value it more in a high inflationary environment.”
“If I’m working to build out a new location, my construction costs are coming in higher consistently,” he continued. “So it would have been fine in the FDD Item 7 to have a project cost of $400,000 historically, but that $400,000 is turning into $550,000.”
Franchisors are in turn adjusting financial requirements for new franchisees because they don’t want a new owner “limping into the system” without the necessary liquidity. “They don’t want them emptying out their bank account to get open because any bumps along the way, it’s going to really be a stressful time for the franchisee. And all great brands don’t want that,” said Rozman.
Additional results show interest rate increases had a negative impact on franchisors’ confidence rating (71.8 percent), while the recent bank instability did not dramatically affect respondents’ confidence. Rozman noted the banking community “couldn’t be monitoring this more closely,” but he’s not “terribly surprised” that franchisors didn’t cite it in high numbers, with 33.4 percent saying it impacted growth goals for the year.
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