I recently attended the UPS Store Convention 2024 in Las Vegas. I gathered some ideas and insights for our franchise clients based on trends industry experts from around the country are seeing in the marketplace.
Insight #1: Using Franchises to Build Wealth and Diversify a PortfolioOne thing is certain: more and more investors are interested in franchise businesses. Over the past year:
Insight #2: Private Equity Investors Are Interested in the Franchise ModelPrivate equity (PE) investors have entered the space to acquire large franchisee groups. US brands continue to attract PE investment at either the brand level, franchisee level, or both. Franchises are attractive to private equity firms because of their established brand recognition, consistent royalty streams, and lower risk due to a proven operational framework. |
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Franchises that are attractive to PE firms generally have the following characteristics:
- Proven resilience and growth potential
- Sustained customer demand
- Solid franchisee validation and satisfaction surveys
- An experienced management team
Insight #3: Younger People Are Investing in Franchises More Than Ever Before
This is my sixth convention. I’ve never seen so many young people in attendance. Below are a few things I noticed:
- It seems that young people are tired of working in corporate. Some have left the corporate world with a golden parachute. Others have funds from an inheritance. Young people are looking for alternative work arrangements and ways to invest their retirement funds through a rollover.
- I met several second and third-generation franchise owners. Grandchildren are now running the business as it passes down from generation to generation.
This process, however, isn’t as simple as it may seem. Adequate preparation for the next-gen owners involves a number of considerations (e.g., formal training, succession planning that addresses the legal, financial, and operational aspects of the transfer, estate planning, potential tax implications, and securing approvals from the franchisor, as many franchise agreements require consent for ownership changes.)
Working with a trusted advisor can help in a variety of ways — by maintaining business continuity, preserving family relationships, and ensuring that the franchise upholds its brand standards and operational excellence.
Insight #4: More Franchisees Are Using SBA Loans
The SBA loan process has improved dramatically over the past 10 years.
From the streamlined application process to flexible repayment terms and lower interest rates, the benefits of SBA loans are many.
Insight #5: Staffing issues continue to be an issue.
It’s difficult for small businesses to compete with larger businesses and offer the same benefits. The same is true for franchises.
The most prevalent complaints I heard from franchisees were about the lack of quality staffing, turnover, and having to compete with other businesses for quality employees.
Insight #6: Availability of Commercial Real Estate Space
Especially for the smaller square footage (1,200-1400 on average) that UPS Stores and other retail franchises use, commercial real estate space is tight in several markets. Long waiting lists for this type of space are hindering franchise expansion for many.
Insight #7: Outsourcing Back Office Functions
There is significant interest in outsourcing accounting, payroll, and HR functions.
The events for this topic at the convention were extremely well attended. At a social event sponsored by an accounting outsourcing provider, more than 500 franchisees showed up, which was significantly more than we were expecting.
It’s no surprise that franchisees want to work with firms that have experience with franchises and experts that know their industry. Outsourcing these functions enables the franchisee to focus on what they do best and leave the rest to the experts.
Insight #8: Technology Investments
Franchisees are leveraging technological advancements to enhance their operations, improve customer experiences, and streamline business processes.
Franchisees are:
- Focusing on new phone apps and customer loyalty apps
- Updating social media platforms as more customers are using Instagram and TikTok to interact with franchise businesses
- Using strategic management tools to track performance metrics and uncover insights that help optimize marketing strategies and customer interactions
Integrating new tech will enable franchisees to stay competitive, reduce operational costs, and adapt to evolving market demands.
Insight #9: Renovation Trends
Franchisees recognize that customers expect modern styles that require significant renovations and upgrades. Many franchises are upgrading their retail spaces or planning to overhaul their layouts over the next couple of years.
Significant investments will be required to fund renovations as franchise agreements are renewed. Franchisees sometimes find that traditional bank loans aren’t the best option. As a result, they’re seeking other capital-raising strategies.
Insight #10: Tax Concerns
Franchisees are worried about future tax rates when current tax rates expire at the end of 2025 for a number of reasons:
- Uncertainty with regard to future tax rates can complicate forecasting expenses and profitability.
- Higher tax rates would obviously reduce disposable income, limiting the ability to reinvest in the businesses, undertake necessary renovations, or expand operations.
To move forward into 2025 with confidence, many franchisees are seeking advice from tax professionals to prepare for potential tax hikes and mitigate the impact on their business strategies.
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