2023 Small Business Franchise Trends
A look at the state of franchises in 2023
Guidant surveys business owners across America to gain insights into the most current small business trends. Our annual Small Business Trends report provides a comprehensive view of the small business climate — revealing what motivates small business owners, small business challenges, and top industries.
Franchising is gaining steady momentum among small business owners surveyed this year. More than 45 percent of our respondents have either opened a new franchise or purchased an existing franchise unit. What’s more, franchise profitability has increased by 19 percent since 2022.
For many entrepreneurs, purchasing or investing in a franchise may come with a lower risk profile than starting a business from scratch. Franchising can provide the security of an established business model and corporate support, making it a popular choice in times of economic uncertainty.
Our study highlights a significant expansion in franchise ownership across demographics, including a rise in the number of women franchisees and franchisees of color.
Let’s explore the latest and growing trends of 2023 among franchise business owners.
Who are Franchise Owners in 2023?
Franchising provides an interesting and often advantageous alternative to starting a business for many. With the right franchise, business owners can take control of their future while having access to resources and support systems.
Among all franchise owners surveyed, over half (77%) started a new franchise location and 23 percent purchased an existing franchise location this year. A majority of respondents found the appeal in being their own boss — with 29 percent citing it as a key motivator in starting or buying a franchise. Many also reported dissatisfaction with corporate America (24%) as driver in pursuing business ownership.
Some respondents pursued franchising after being laid off this year (13%), while others started a business because they weren’t ready to retire (12%) — with just as many pursuing franchise ownerships out of passion (12%).
The remaining 10 percent went into business because of an opportunity (7%), life event (2%), and inspiration for a new business idea (1%).
Generational Differences Among Franchisees
Franchise ownership continues to predominately belong to the Gen X (50%) or Baby Boomer generation (38%). Millennials made up the remaining amount at 12 percent.
Gen X franchise owners have surpassed the number of Baby Boomer franchise owners this year, as the latter decreased by around 15 percent this year. Meanwhile, the number of Millennial business owners has grown significantly over the past year — increasing by 163 percent or 2.6 times since 2022.
As we look to the future, we anticipate a growing number of Gen X and Millennial entrepreneurs in pursuit of franchising.
Diversity in Franchising
We are beginning to see great strides toward diversity in the franchise landscape as more and more business owners from different backgrounds choose to franchise. While white or Caucasian males continue to account for most franchisees surveyed, our study shows an encouraging uptick in minority franchise owners this year.
Male franchisees continue to dominate the franchising landscape, with 71 percent identifying as male and 29 percent female. Despite the continued gender disparity among business owners, there’s been a strong and steady growth of women representation over the past year in businesses of all types, including franchises. Male franchisees have decreased by nearly seven percent since last year — and women franchise owners have increased by 25 percent.
Entrepreneurs of color are also on the rise in the overall share franchising space, as “Black or African-American” respondents saw a 2x increase in the last year. “Asian or Asian-American” franchise owners also experienced a great growth at 86 percent (nearly 2x).
Though some areas experienced promising movement within the franchise ownership space, those of “Hispanic, Latino, or Spanish” origin saw very little fluctuation year-over-year among respondents surveyed.
Although diversity in franchising has substantial room to grow, franchise ownership among minorities has seen a surge in growth over the past year — with a more than 20 percent increase since 2022.
By empowering small business owners and entrepreneurs, particularly those from underserved backgrounds such as women in business or minority groups, Guidant strives to foster an inclusive environment of opportunity. We are dedicated to creating a more equitable future for the next generation of innovative leaders and business owners.
Top Franchising States
Political Affiliation and Confidence
Most franchisees identified as Republican (42%) though a significant portion felt they didn’t belong to or feel represented by any political party (29%). Finally, 22 percent identified as Democratic, and seven percent identified as Libertarian.
Additionally, our study found that many franchisees are uneasy about today’s political landscape, with 43 percent expressing some level of uncertainty or lack of confidence. Still, a considerable number of franchisees surveyed expressed confidence in the future.
Nearly a third of respondents reported feeling “somewhat confident” (29%) this year, which tied in second for majority with those who felt “somewhat unconfident” (29%).
A considerable amount of franchisees also feel “neutral” about the political climate (23%).
Measuring Happiness Levels Among Franchisees
Despite grappling with supply chain disruptions and price hikes, a significant number of franchise owners are happy with business ownership this year — with 37 percent of surveyed respondents feeling “somewhat happy” and 27 percent feeling “very happy.”
While these figures are encouraging, a fraction of franchisees report feeling neutral (15%) and somewhat dissatisfied (16%). Only five percent report feeling very unhappy.
The small business world has seen its fair share of challenges in recent years, particularly for small businesses who have had to contend with the double-whammy of a pandemic and rising prices. In light of these issues, it’s not surprising that some business owners feel overwhelmed by their current situation.
What are Franchisees like in 2023?
New or Existing?
Of the franchisees surveyed, 77 percent chose to open a new franchise location as opposed to purchasing a previous location. The remaining 23 percent purchased an existing location.
Similar to last year, franchisees in our segment chose to start fresh with new locations at a much higher rate than independent business owners in 2023.
Franchise business owners were 66 percent more likely to open a new franchise location. This trend could suggest that franchisees are more confident in their business endeavors, likely due to the support and training that many franchisors offer. With a proven business model and resources franchising offers, those who franchise are likely more attracted to starting a brand-new location.
Top Franchise Industries
As with the average, the largest industry category in franchisees this year was retail (storefront, eCommerce, etc.) at 17 percent. The Health, Beauty, and Fitness services followed closely behind at 16 percent. Both Food & Restaurant and Business Services industries showed a strong presence in the franchise sector, placing third at 11 percent each.
Franchises belonging to the Residential/Commercial Services and Contracting tied for fourth. The Education industry came in fifth, accounting for eight percent of franchises. It is worth noting that franchise businesses were 57 percent more likely to fall into the business services industry, and nearly 45 percent more likely to offer education, training, and childcare services compared to independent businesses.
Overall, franchised businesses surveyed make up a diverse range of industries in the small business sector — with Retail, Health, Beauty Fitness Services, and Food & Restaurant remaining top industries among all small businesses.
Top Challenges in Franchising
While our study shows a promising trend of improvement in recruitment and retention, small business owners across the board continue to struggle with persistent staffing challenges. This includes franchisees, with a majority of franchise owners surveyed reporting recruitment and retention as their biggest hurdle (24%).
Behind recruitment and retention, the top three challenges were lack of capital/cash flow (19%), marketing/advertising (9%), and supply chain issues (8%). Despite the ever-changing landscape of small business, many business owners continue to struggle with these common issues.
Profitability and Growth
Despite the obstacles posed by 2023 — compounded with lasting effects of the pandemic — a significant majority (61%) of franchise owners reporting success in profitability. The remaining 39 percent of franchises surveyed were unprofitable this year.
Even with many of the surveyed franchises being fledgling businesses in a challenging economy, franchise profitability boosted by 19 percent since 2022.
Profitability for small businesses typically takes three to four years. In fact, a recent survey by Kabbage discovered that the vast majority of small business owners (84%) become profitable in four years on average. The rise of profitability among franchisees surveyed shows remarkable growth in the franchising sector.
Our survey results paint a picture of success for franchises this year, signaling an optimistic outlook for franchising. Franchise opportunities and growth are also projected to continue expanding in the coming years.
According to FranData’s 2023 Franchising Economic Report, an estimated 790,492 franchised businesses increased economic output to $825.4 billion from 2021-2022 — increasing by nearly five percent, which is faster than most historical growth rates.
While 2022 was a particularly challenging year for franchises, FranData predicts that franchised establishments will continue growing in 2023 and reach a total of 805,436 franchised units.
Franchise Financing Trends
This year, 401(k) business financing — otherwise known as Rollovers for Business Startups (ROBS) — was the most popular form of funding among franchisees. Coming in second and third place were cash investments (18%) and Small Business Administration (SBA) Loans (14%), respectively.
It should be noted that many of our respondents leverage ROBS to get their business up and running as Guidant is the top ROBS provider in the U.S.
With inflation and economic uncertainty, more aspiring and current business owners are turning to ROBS as reliable financing option. ROBS lets entrepreneurs invest their retirement funds into the startup of their own businesses without taking on crippling debt — and with loan rates continually increasing, this financing method is becoming increasingly attractive.
SBA loans continue to be a go-to option for small business owners. Traditional business loans are often more difficult to qualify for, require significant down payments, and have higher interest rates. For many aspiring and current business owners, SBA loans can be a viable financing option to start or grow a business.
Franchise Recruitment and Retention Trends
Hiring Difficulty During the Great Resignation
Small businesses have continued to be affected by the Great Resignation, with recruitment and retention continuing to be one of their biggest concerns this year. Franchisees also continue to struggle when it comes to recruitment, as exceptionally high employee turnover has left them struggling to meet staffing needs.
Among franchise owners surveyed, a majority reported the hiring process as either “very difficult” (24%) or “somewhat difficult” (24%) compared to previous years. A significant portion felt the hiring process was the same (22%) and many didn’t hire any employees this year (21%). Only 10 percent of respondents felt the hiring process was somewhat to very easy compared to other years — indicating that competition for prospective employees remains tight.
Although a majority of franchise owners surveyed report recruitment and retention issues, our figures demonstrate a positive shift since last year. The hiring and retention issues faced by franchisees have seen a remarkable improvement, with a 62 percent decrease since 2022.
Gaps in Candidates
Despite the growth in small business, experienced talent remains elusive — with our survey showing that independent businesses and franchises alike are struggling to find candidates who possess the needed work experience (17%), soft skills (12%), and technical skills (11%). An overwhelming amount of respondents reported a low number of applicants (27%) and challenging competition from other employers (18%).
Franchise owners are also faced with the challenge of finding qualified talent for critical positions such as sales (30%), management (15%), healthcare/childcare specialists (12%), and food service professionals (10%).
The Franchise Response and Future Plans
To combat recruitment and retention difficulties, franchise owners across the board increased compensation to attract talent (29%), invested in retention efforts (19%), and bolstered benefits packages for employers (10%) as a response to these challenges. Many franchisees also broadened their recruitment advertising strategies (10%).
As franchise owners look to the future, it’s no surprise they recognize that investing in employees and business operations is essential for future growth. An impressive 31 percent of those surveyed intend to increase staff this year, while 34 percent plan to invest in marketing. Additionally, 15 percent of franchisees plan to expand or remodel their businesses.
Behind retention and recruitment, the top three challenges were inflation (19%), lack of capital/cash flow (16%), marketing (9%), and supply chain issues (8%). Despite current challenges, fewer franchisees are struggling with capital and cash flow issues — with a 47 percent decrease reported since last year.
Franchisees Share Recession and Economic Insights
The majority of franchisees are anticipating a potential recession, while some remain optimistic that the economy won’t experience long-term hardship.
Among the surveyed respondents, 45 percent believe we’re heading into a long-term recession, 35 percent are unsure, and 20 percent don’t expect any major changes to our current market conditions.
Although many remain confident about the future, all franchise owners have felt the effects of an ever-evolving economic landscape this year. Most franchise owners felt the impact of inflation (26%) this year, with many experiencing a loss of revenue (17%). Others reported having to increase wages (13%) or even cut their own wages (9%) due to the economic conditions. Some also had to reduce the business budget (6%).
Confidence in Franchise Ownership
Despite current economic difficulties, many franchise owners are confident that their businesses will weather the storm. Nearly a third of respondents expressed they were either somewhat or very confident (33%) — while 36 indicated they felt slightly unconfident, and 18 percent had neutral sentiments. Only 12 percent fear about the future of their businesses.
This data suggests that many franchise owners remain cautiously optimistic about the future of their business, looking forward with confidence in spite of economic downturns.
Looking Ahead: Franchise Owners Plan for Future Growth
The pandemic, inflation, and supply chain issues have posed significant hurdles for small businesses — and franchisees are no different. Despite the current climate of economic uncertainty, most franchise owners are confidently taking steps to expand their business this year.
With nearly half set on growing (52%), a notable portion planning to sustain their current businesses (24%) — and even nine percent planning to open additional location — it’s clear that most franchisees remain optimistic about future endeavors. Only 15 percent of respondents are planning to sell their businesses in 2023.
A majority of franchisees plan to increase staff (31%), invest in marketing (34%), and expand or remodel their businesses (21%).
A Promising Future in Franchising
Franchisees are ready to steadfast and overcome whatever challenge the economy throws at them — a confidence echoed in throughout our 2023 Small Business Trends study. Despite economic uncertainty, business owners across the board remain dedicated to continued growth of their operations and anticipate a more prosperous year ahead.
In fact, franchising has become an increasingly attractive option for small business owners. It provides access to a ready-made and proven business model that can give entrepreneurs the competitive edge they need in an unstable economy — from marketing to experienced support networks.
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