President’s Proposed 2013 Budget Provides More Funds for Small Business Administration

Posted on May 8, 2012 by admin

SBA Loans for Small Business OpportunitiesWith the goal of making it easier for Americans to take advantage of small business opportunities, the Obama administration has proposed an increase in funding for the Small Business Administration (SBA) and its loan guarantee programs in federal fiscal year 2013.

The Administration’s recommended SBA funding increase has received the endorsement of the National Association of Government Guaranteed Lenders (NAGGL) and the International Franchise Association (IFA), a leading advocate for the franchising industry worldwide.

According to the IFA, SBA-backed lending to franchised businesses represents some 10 percent of the total dollar amount disbursed through the agency’s loan guarantee programs.

The 2013 budget proposal, first released by the White House in February calls for a 3.5 percent increase in allocations to the SBA compared to the previous fiscal year. The Senate Committee on Small Business and Entrepreneurship heard testimony on the proposed SBA budget in late March, at which time the IFA sent a letter of support to Committee Chairwoman Mary Landrieu, a Louisiana Democrat, as well as the ranking Republican member, Senator Olympia Snowe of Maine.

The proposed SBA budget would provide $949 million for the agency in the coming year through regular allocations, plus another $167 million designated as disaster relief to be disbursed under the SBA’s Disaster Loans Program.

The budget request includes $349 million in credit subsidies for the SBA’s two main guaranteed loan programs, the 7(a) and 504 programs. This level of funding would support approximately $16 billion in 7(a) loans and $6 billion in 504 loans.

The SBA’s 7(a) program provides guarantees that encourage lenders to make loans to small entrepreneurs to start or expand a business. The 504 program assists small businesses in building or purchasing commercial real estate or in acquiring business equipment or machinery.

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Organization’s Business Index Gauges Health of U.S. Franchising Industry

Posted on May 7, 2012 by admin

Business Franchise Index Shows Health of Franchise OpportunitiesA new tool to assess U.S. economic conditions as they pertain to the franchising business was introduced in March. Called the Franchise Business Index (FBI), it could provide valuable information for franchisors, franchisees and anyone who’s considering buying a franchise in the United States.

The FBI is a business index that factors in various statistics on the U.S. economy in an attempt to assess the current environment for the nation’s franchised businesses. The International Franchise Association (IFA) publishes the Index, which is compiled on its behalf by the consulting firm IHS Global Insight. The IFA is the oldest and largest trade group in the world representing the franchising sector.

The FBI, which will be updated monthly, factors in U.S. economic data from government and non-government sources, including:

  • employment rates in franchise-intensive industries (U.S. Bureau of Labor Statistics)
  • number of self-employed persons (BLS)
  • overall unemployment rate (BLS)
  • consumer demand in franchise-intensive services (U.S. Bureau of Economic Analysis)
  • Small Business Optimism Index (National Federation of Independent Businesses)
  • Small Business Credit Conditions Index (NFIB)

The BLS is bureau of the U.S. Department of Labor, while the BEA is affiliated with the Department of Commerce. The NFIB is a private organization that is a leading advocate for American small business.

The various components of the FBI are scored and weighted by a formula to arrive at one comprehensive number meant to express the health of the franchising sector, which makes up a large component of the country’s economy.

Although the FBI is new, the Index was figured retroactively back to January 2000, which was used as the baseline month. The Index was given a value of 100.0 for that month. After January 2000, the FBI rose more-or-less steadily to a level of around 111.0 before the recession caused it to dip down below 105. The FBI has recovered since then and stood at 107.7 in February and March of this year. Although it was stagnant between February and March, the Index had experienced three straight increases in the previous three months and was 1.3 points higher compared to this time last year.

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President’s Proposed 2013 Federal Budget Would Raise Taxes for Franchised Small Businesses, Says International Franchise Association

Posted on May 3, 2012 by admin

Federal Taxation of Franchised BusinessesThe largest trade group representing the franchising industry says that the federal budget proposed for next year by the Obama administration would harm small franchisees at a time when they could be significant engines for economic recovery and growth in the United States.

The Washington, D.C.-based International Franchise Association, which represents some 825,000 U.S. franchise establishments that support nearly 18 million American jobs, released a statement at its annual convention in February weighing in on the President’s budget and tax proposals for the coming year. The IFA is the largest trade organization for franchised businesses in the world.

Instead of reforming the corporate tax structure, something that affects only larger businesses and which the IFA terms a “piecemeal” approach, the Association advocates comprehensive reform of the U.S. tax code in a way that will stimulate job creation by small businesses and more small business opportunities, including increased franchise ownership.

“Tax reform must be done on a comprehensive level that lowers both the corporate and individual tax rates,” said IFA President & CEO Steve Caldeira in a press release.

Caldeira explained that more than 80 percent of franchised businesses are ”pass-through” entities such as S-corporations or LLCs that report business income on their personal income tax return and thus pay taxes on their business income at individual tax rates, rather than at corporate rates.

Nevertheless, 100 percent of franchise business professionals surveyed at the IFA’s 2012 convention in Orlando indicated that they feel more optimistic about their plans for growth this year than they did in 2011. The IFA’s 2012 Franchise Business Economic Outlook, prepared by IHS Global Insight, projects growth in the franchising industry of approximately 2 percent in 2012, both in the number of jobs (168,000) and in the number of franchise outlets (14,000).

“While poised for modest 2 percent growth in 2012, franchise businesses could grow significantly faster if the President and Congress offered solutions for long term certainty on tax reform that do not raise taxes on small business,” said the IFA’s Caldeira.

A survey of franchisors and franchisees conducted in October 2011 by the IFA indicated that they overwhelmingly believe that franchise growth would be stifled under the President’s budget and tax proposals. In the survey, 88 percent of franchisors and 73 percent of franchisees indicated that higher tax rates on households earning more than $250,000 per year will negatively impact their businesses.

The survey also showed a desire by franchise business owners to simplify the tax code by trading credits and deductions for a lower tax rate, but not if the effective tax rate for pass-through entities would increase.

In January, the IFA sent a letter to President Obama and members of the 112th Congress urging them to take up comprehensive tax reform.

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Sales of Small Businesses Trended Upward Again in 2011

Posted on April 27, 2012 by admin

Small Business for SaleMore Americans engaged in selling or buying a small business in 2011, making two consecutive years of growth in the small-business-for-sale market. BizBuySell, an internet-based small business acquisition company headquartered in San Francisco, reported that sales of small businesses rose 3.3 percent in 2011. BizBuySell had reported an increase of 3 percent in 2010, and said that it expects the upward trend to continue during 2012.

Still, these modest increases in recent years come after much larger drops in the small business market that occurred earlier in the wake of the economic recession. Sales of small businesses fell by 28 percent in 2009.

Small improvements in the overall economy and in small business lending are thought to be the main reasons that more businesses for sale are finding buyers lately. But another factor could be that sellers are offering more realistic prices in order to keep buyers interested in their small business opportunities.

The median selling price of a small business did rise in 2011, but only by the same modest 3.3 percent figure that sales rose. That percentage represents only a $5,000 increase, from $150,000 in 2010 to $155,000 in 2011. Median selling prices had been around $180,000 just a few years ago.

Median asking prices are still up near that range, at about $175,000 in the last quarter of 2011, but sellers on average have been willing to settle for less in the end. Also, many sellers are helping buyers to finance the purchase of their businesses, and to a greater extent than usual. BizBuySell quotes a business broker who says that sellers are sometimes carrying 50 to 70 percent of the purchase price, much higher than the level of seller financing that would prevail in a healthier economy, which is about 20 to30 percent.

The median annual revenue for small businesses sold last year was markedly higher than the year before, but at about $360,000 for the last quarter of 2011, the median revenue figure has not yet even recovered to late 2008 levels. Both the sales price and median revenue figures vary widely by geographic location, of course.

According to the BizBuySell statistics, retail businesses – both restaurants and other retail establishments – made up about half of the small business sale transactions in the last part of 2011. Of the other half, the majority, or a total of 38% of all business sales, were of companies that provide services.

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State ‘Fair Franchising Bill’ Winds Through California Legislature

Posted on April 24, 2012 by admin

California Franchising LegislationEntrepreneurs who are looking for small business opportunities through buying a franchise may soon have to contend with the effects of new laws governing the franchisor-franchisee relationship in California and two eastern states.

A California assemblyman introduced legislation in February that he says is intended to help franchisees, but that others say could have the effect of driving franchisors away from the state.

The proposed legislation, known as the Level Playing Field for Small Businesses Act or Assembly Bill 2305, was introduced in February by San Rafael Democratic Assemblyman Jared Huffman and is co-sponsored by Assemblyman Tom Ammiano of San Francisco. Bill 2305 was meant to replace the franchising law that has been in place in California for 32 years.

The International Franchise Association (IFA) and the California Chamber of Commerce have voiced their opposition to the bill, saying that it would take away some of the power that franchisors have to control their brands and to protect the majority of franchisees from negative consequences caused by the minority who don’t maintain the required standards of quality.

Massachusetts and Vermont are both set to consider similar franchising legislation this year. Three years ago, Rhode Island passed a new franchising law that dictated some of the terms under which a franchisor could terminate a franchising contract. Laws governing some aspects of franchising agreements currently exist in 17 other states, the District of Columbia, Puerto Rico and the Virgin Islands.

As with many other areas of legislation, the regulatory environment for franchising in California is followed closely because of the state’s size and influence. According to the IFA, California has 83,000 franchised business locations that in total generate $94 billion in economic output and employ 925,000 workers. Franchised businesses are an economic sector that is doing relatively well in a state that has been one of the hardest hit by the recession and still has an unemployment rate of 11 percent, the third-highest in the nation.

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