The State of Franchising in the United States of America

Franchising in the US is despite the past recession as strong as ever and maybe even stronger. Now that the credit markets have loosened up, somewhat, more franchisors are able to sell more franchises because more franchisee prospects are now able to obtain financing.  This was not the case in 2008 or 2009, when the credit markets all but disappeared.

But for those of you reading this article and who are not familiar with franchising in the US and how it works, let me give you a little insight.  Hopefully it will encourage those of you who have businesses in other countries who want to bring your franchise program to US, to do so.  I am quite bullish on bringing foreign brands to the US as they are being embraced by the American consumers in droves.

Franchising in the US is a highly regulated industry, unlike many foreign countries, where there are no franchise laws whatsoever, like the UK or India, for example.  In the US, we have the FTC Rule, which is a national law that governs the sale of franchises in every state, and then we have 15 other states that have their own set of franchise laws that also govern the sales of franchises in their particular state.  All franchisors (with a few exceptions), must comply with those state laws, and all franchisors (with a few exceptions) must comply with the FTC Rule.

While cumbersome and time consuming, having these laws that govern franchising is a good thing and it keeps franchisors on the straight and narrow, and discourages unscrupulous franchisors.  It may be expensive when compared to other countries to comply; all franchisors must comply and must hire legal counsel experienced in practicing franchise law.

Now that the recession is over (maybe not, we shall see in the coming months), I see more companies interested in franchising their businesses.  Why franchise you say? That is an easy question to answer.  First, if you wish to expand your brand, but lack the capital to do so, it is easier to have franchisees that will do that for you.  They spend their own capital, use their own human resources and do their own marketing to get your brand out in the marketplace.  It is for this reason that franchising has grown over the years in popularity as compared to company-owned growth.  With so many people unemployed, the pool of potential franchisees has grown exponentially, which is one of the reasons that franchising has increased its popularity during this difficult economic time in the America.  People who cannot find a job turn to owning their own businesses, and the easiest way to do that is to own a franchise.

It is my view that foreign franchisors who are sold out in their respective countries should strongly consider delving into the US franchise marketplace.  The expansion possibilities for these companies are endless.  It is not unusual for a Canadian franchisor to venture across the border to expand into the US, knowing that the prospects for growth are enormous.  My only caveat for these foreign franchisors is that they hire qualified franchise professionals, like experienced consultants and franchise attorneys and accountants who are also familiar with franchising.

Harold L. Kestenbaum has been representing franchisors for 35 years, and has written a book on how to franchise your business, called, “So You Want to Franchise Your Business”. He is a partner in the national law firm of Gordon & Rees, and is located in East Meadow, NY. His telephone number is 516-745-0099 and his temporary email is hkesten@att.net.  His website is www.franchiseatty.com