Franchise Your Business (2023 Update)
Despite economic uncertainty, 2022 was a good year for the franchise industry. Will those trends continue into the new year?
For many business owners, 2022 was a year of deep economic uncertainty and upheaval on multiple fronts.
Despite those challenges, the year also presented strong opportunities for growth and advancement in the franchise industry. Although the year’s numbers haven’t been finalized yet, the International Franchise Association’s annual Franchise Economic Outlook report for 2022 predicted a strong year, estimating that the franchise industry would “end the year with more than 792,000 establishments, adding a net gain of 17,000 new locations.” Anecdotally, those predictions seem to be on point as the year draws to a close.
“The franchise industry was strong [in 2022]. Franchising is attracting smart entrepreneurs, business owners of successful businesses that are looking to scale and grow. That's always the advantage to franchising – the franchise model allows you to onboard franchisees that supply capital supply managerial skill, open up new locations, and expand the reach of your brand,” says Charles N. Internicola, a franchise attorney with over 25 years of experience in the industry and the founder of The Internicola Law Firm.
In addition to growth at the unit level, Internicola says his firm has also seen “tremendous activity and interest” from private equity companies looking to invest in and buy franchise systems at high multiples – a phenomenon that could reflect the market value of shifting priorities among entrepreneurs in the U.S.
“Even in new industries that aren't traditionally thought of as franchisable businesses, in 2022 we've continued to see social and economic shifts that favored franchising, business ownership – sort of controlling your life and building income that's not directly connected to corporate America,” Internicola says.
Despite the upward trends franchise industry professionals experienced in 2022, though, continued economic uncertainty seems unavoidable moving into 2023. So what should startup franchisors expect from the industry as they head into the new year? Read on to find out.
Strategy is everything for franchise success in 2023
When it comes to franchising, the recipe for success is the same in 2023 as it always has been: education and smart strategies focused on steady growth and incremental improvements over time.
“For those franchisors that launched and franchised their business in 2021, I'd say they did very well if they've attended conferences, they've launched a best practices-driven Franchise Disclosure Document (FDD), they're learning franchising. They built out and keep improving their franchise brand story on their franchise sales website. Again, nothing is ever complete – it’s always a work in progress,” Internicola says.
For new franchisors entering the industry, education and careful planning during the first few years of business can make the difference between success and stagnation – or worse.
“Reflecting on our clients – they approach franchising with that five-year planning, they approach their first year as a year to build their foundation, season their franchise brand, build out their franchise brand story, learn franchising. And the goal is just to organically reach out and sell franchises to people that know your brand – customers, influencers. Focus on just a few franchisees – over-support them, build out validation, build the foundation for growth,” Internicola says, adding that new franchisors should view their first three years as “building years,” with years four and five reserved for accelerated growth – regardless of whether the economy is weak or strong.
Opportunities for new franchisors in the coming year
Heading into the new year, Internicola predicts another year of economic turbulence – but says that shouldn’t stop entrepreneurs from pursuing their goals as new franchisors in 2023.
“I think it's an accurate expectation that there'll be more economic turbulence ahead. We're in an inflationary cycle. Now, do we level out or do we go into a deflationary cycle? I think the theme [for 2023] is definitely economic turbulence,” Internicola says.
Despite the challenges that economic downturns can bring, Internicola is quick to point out that historically, recessions – and even depressions – have been the foundation of many successful businesses. For example, Howard Johnson sold its first franchised restaurant during the Great Depression, with Dairy Queen franchising its successful business model just four years after the depression’s end.
“Let's start off with the right mindset – that during recessions and downturns is probably the best time to plant seeds for future growth. And franchising your business is very much setting that foundation for future growth,” Internicola says.
Times of economic uncertainty are also an excellent time to evaluate your business’s processes and systems, learn about new industries, and go through the process of franchising an existing business. Tech-savvy startups could also find opportunities to outmaneuver the competition – including legacy brands and major competitors – by leveraging digital media in 2023.
“There’s a whole new generation of founders and leaders that understand digital better than the largest companies out there. And so, for so many of our clients, they're building memorable brands, memorable businesses that connect with their consumers. And ultimately you're going to connect with franchisees,” Internicola says.
Mindset is everything for startup franchisors in 2023
For new franchisors that are preparing to franchise an existing successful business in the coming year, having the right mindset will be critical for achieving sustainable success.
“What I see on the horizon for 2023 – definitely for smart entrepreneurs and founders and leadership teams – is that franchising your business will continue to provide a compelling opportunity. The economic turbulence in 2023, which we've seen in 2022, actually creates opportunity in franchise sales – but also is a great time to build the foundation for the future,” Internicola says.
Because it can enable long-term growth for a business, Internicola recommends thinking of franchising as both an offensive and defensive measure. By laying down a strong foundation early and creating a five-year success plan, startup franchisors can use their first few years in business to organically season their brand – a best practice new franchisors should follow even when launching their business in a strong, stable economy.
“Eventually, if it's in year two or three and we come out of recession or economic turbulence – well, we're not starting in year three to franchise our business. We've been building this great foundation in years one and two from a defensive posture,” Internicola explains, adding that franchising can also provide an opportunity to make a positive difference in the lives of franchisees hoping to open a franchise business in the new year.
Because most startup franchisors should use their first two or three years to improve their systems and over-support their first few franchisees (a move that can boost Item 19 financial performance representations and improve franchise sales in the future), Internicola says entrepreneurs franchising a business in 2023 can come out ahead when the economy improves – and ideally end up with more control over their lifestyle, business, and finances as a result.
“Continued disruption, economic turbulence – any type of turbulence – creates opportunity. So I believe we're going to continue to see shifts on a social level and an economic level where people are more accountable for their future lifestyle and what they want to do with their time,” Internicola says.
FranX Franchise Predictions for 2023
And looking back at 2022
Charles N. Internicola, Nick Powills, and Brent Dowling of FranX take a look back at 2022 and the future of franchising.
Resources for Franchising Your Business
If you’re a successful business owner who’s thinking about franchising your business in 2023, we’ve got you covered. Below are some helpful resources to get you started on the path to franchising your business the right way.
To learn the steps to franchising your business, check out our article “How to Franchise Your Business: Seven Steps.”
To find out more about franchising and claim your free profile, visit FranX – and keep an eye out for upcoming conferences and workshops.
To connect with other franchising industry professionals, join our Franchise Growth Mastermind Community on Facebook.
As always, we also love to hear from prospective franchisors that are ready to make a change in their careers – and in the lives of their future franchisees. Don’t hesitate to get in touch with our staff to find out how we can help you win at franchising in 2023.