October 25, 2014

Obamacare, Franchise Owners And Choices

It’s over. The votes (for the most part) have been counted; a few virtual handshakes have taken place between former rivals. TV ads and lawn signs are gone. It’s time to get back to business.

Franchise owners who’ve been, “waiting to see what happens with the election” have some decisions to make. And, I don’t think that those decisions are going to be difficult at all.  That’s because franchisees really only have two choices. They are:

  1. Grow
  2. Go

Why Are Franchises Purchased?

I’ve never met a prospective franchise owner who’s wanted to become a franchisee for the heck of it.

In other words, people don’t invest a significant portion of their life’s savings into a business unless they feel that they can come out as winners. And, winning to them usually has to do with the growth of their bank accounts. The word to key in on here is “growth.”

Of course, there’s no guarantee that the franchise concept chosen will turn a profit-even one that is a well-known brand. A great brand can become a not-so-great brand in a hurry these days, thanks to the rise in internet use and the 24/7 social media world we live in. But, for the most part, today’s franchise buyer’s take a hard look at the pros and cons, and make their decisions accordingly.

Once they’ve signed their franchise agreement and loan papers, they’re off and running.  At first, their goal is to break-even. Once that happens, it’s strategy-time. More times than not, that strategy involves profit-seeking.  It may even involve growth.

In franchise business ownership, growth is pretty easy to visualize, especially if it’s in the retail or food service space. It even has a name; multi-unit franchise ownership.  Attaining multi-unit ownership status is pretty high up on the list of things that define success for today’s franchise owners.

Or Not

Believe it or not, some franchisees appear to be ready to not grow their businesses, and they seem to be blaming it all on Obamacare.

Zane Tankel, a multi-unit franchisee of Applebees, says that he won’t be able to add more restaurants to his 40-unit empire. That means that he won’t be able to create more jobs.

Helping to add fuel to the fire of his assertion that he’ll have to stop his company’s growth because of Obamacare, is a detailed report created for The International Franchise Association (IFA) by The Hudson Institute.

Titled, “The Effects of the Patient Protection and Affordable Care Act on the Franchise Industry,” this report states the following:

“The new health care law will have negative effects on the franchising industry’s ability to grow and create much-needed jobs for the U.S. economy.  We estimate that the law will negatively affect tens of thousands of franchise businesses, adding more than $6.4 billion in increased costs, not including the cost of regulatory compliance.  Further, we estimate that the jobs of more than 3.2 million full-time employees in franchise businesses would be put at risk.”

Spin Can Get In The Way

I’ve always had the ability – and the desire – to listen to both sides of a story. But realize that I always have to consider the source.

For example, John Schnatter, CEO of the Papa John’s pizza franchise empire, said that he would have to increase the price of his pizza because of Obamacare.  I’m more inclined to take Schattner at his word if it wasn’t for the fact that he was one of Governor Romney’s most visible donors, even holding a fund raiser or two at his private mansion.

Update: Schnattner has apparently walked back his statement about raising his prices and will instead be cutting employee hours due to Obamacare.

The Bottom Line

Some franchisees will continue to grow their businesses. They will also continue to find ways to cut costs. That’s what small business owners do.

While none of us really know what the next year…the next four years actually – will bring in terms of business growth, one thing is certain.  Small business owners are in it to win it – and they’ll keep finding ways to do it.

John Schnatter, CEO of Papa John’s Pizza Photo via Shutterstock

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Joel Libava - Franchise Expert


Joel Libava Joel Libava is the Franchise Expert for Small Business Trends. Joel, The Franchise King®, equips today’s prospective franchise owners with time-tested, proven techniques designed to increase odds of success. He does this through one-on-one coaching, and gobs of useful content that can be found on places like Small Business Trends, SBA.Gov, and his award-winning franchise blog, The Franchise King Blog . He’s been featured in Entrepreneur® magazine, and is frequently called upon by national media outlets and publications for his no-spin insights into the world of franchising.

7 Reactions

  1. Joel, a very interesting post. Any major change in Federal Power like Obamacare creates headwinds for many small business, let alone franchises. Just the time and money it takes to figure out what the legislation means to them can be a daunting task. To point out Mr. Schnatter political affiliation, and intimate that his comments tried to help Mr. Obama’s opponent, may be unfair and out of line.

    • Thanks for commenting, Kip.

      Schnatter’s comments are 100% politically driven; that’s why I pointed him out in this post.

      And, his political affiliation is obviously important here.

      It’s time to get back to doing business.

      The Franchise King®

  2. Great informative post, Joel. Thanks for sharing this with us.

    Ti

  3. Why the focus on political affiliations rather than the facts?

    ObamaCare mandates minimum standards for health plans (60% or more of expected healthcare expenses), and requires that employees pay no more than 9.5% of family income in premiums.

    Employers pick up the difference between premium costs, and employee contributions. If employers chose not to swallow this higher cost, they must pay penalties for not offering affordable coverage.

    Pizza franchises employ a significant number of low income workers – those most likely to require higher employer premium contributions, or penalties.

    Any way you slice it, ObamaCare increases the cost of making and delivering pizza – no matter what your political affiliation.

    • Thanks for commenting, Kevin.

      If the franchisors – and even some of the franchisees that are being vocal about they’re, “plans” weren’t being political to begin with, I wouldn’t have to bring up their affiliations.

      And those pizza franchise employees? A lot of them are part-time.

      They would probably never be offered benefits to begin with, these days.

      The Franchise King®

      • Joel, [Edited by Editor] Getting back to bad business is a poor suggestion on how to run the most successful free-market country well, ever… Have a great day!

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