In 2023, running a franchise is no simple task. Recent data from a wide variety of sources points to the fact that franchisees are facing unprecedented challenges: financial, logistical, and even ethical. It’s a complex situation, and the solution might not be immediately obvious.
The financial issues are fairly straightforward. In May 2022, the U.S. inflation rate reached 8.6%, the highest level in 40 years. The cost of running a business has increased, and profit margins have shrunk as a result. One survey of small business owners from Digital.com showed that 97% have taken some kind of action to combat inflation, from reducing employee salaries and conducting layoffs to raising prices for customers. Despite these actions, small businesses still face risk of closures.
COVID-19 already put small businesses in a precarious situation after two years of shutdowns and decreased customer activity. Though there has been a post-pandemic bounce back, inflation has reduced profit and consumer spending once again. Between July 2021 and July 2022, revenues grew by 87%, yet small businesses’ profits actually dropped by 4%. This was due largely to the rising cost of running a business, including labor, goods, and freight prices.
Businesses are also facing major operational problems. Supply chain issues are occurring across multiple industries, especially quick-service restaurant (QSR) franchises. It has also become increasingly difficult to hire and retain labor. Staffing shortages make it challenging to operate a business, and they also impact profits. To attract employees, small businesses are having to offer competitive salaries, but these wage hikes eat into profit. The QSR industry, for example, has seen an average wage increase of 9.3% across the board in the last year alone, according to data from Hourwork.
At the same time, as businesses compete for talent, there is less employee loyalty. Workers are more willing than ever to leave for competing businesses who may offer a slightly higher pay rate.
Reduced profit can create additional operational issues. Most businesses, whether QSRs, retail locations, gyms, and more, rely on their equipment to create a comfortable environment for employees and customers, light their facilities, and protect perishable goods. Often this equipment requires repairs or costly replacements, and issues that arise can cause major loss of business.
For example, a heating and air conditioner (HVAC) unit is essential during hot and cold months throughout the year. These units are often outdated and unreliable, requiring repair or even replacement. A single HVAC unit costs around $15,000—and most businesses have several units in their location. A recent survey of franchisees across the U.S. revealed that 1 in 3 do not have enough money in the back to afford a single HVAC replacement.
Compounded with HVAC supply chain issues, this kind of equipment issue can be catastrophic for a small business. During extreme heat, for example, a broken HVAC may force a business to close its doors for days, if not weeks. With razor thin margins, this can break a small business. The same survey showed that 46% of franchisees have had operational issues caused by energy equipment maintenance and repairs, and 30% have needed repairs or replacements they couldn’t afford.
Equipment issues can be critical, and having up-to-date equipment is an urgent need for franchises and other small businesses who are facing financial precarity.
The importance of equipment runs even deeper. Beyond avoiding devastating loss caused by malfunctions, old energy equipment can have a serious impact on a business’s bottom line. Light fixtures, refrigerators, and HVACs guzzle up energy. With skyrocketing energy prices, running this essential equipment can cost a fortune and make up a significant part of a business’s monthly budget.
If a business invests in replacing this equipment with more modern, energy efficient models, they can see a huge reduction in the amount of energy being consumed. With other business costs on the rise, often outside of a franchisee’s control, being able to reduce energy spend is a practical and easy way to protect profits.
Plus, 92% of franchisees are concerned about the environment and climate change. Energy efficiency not only helps a business, but also reduces its carbon footprint to protect the planet.
Yet many business owners are simply not in a financial position to invest in new energy efficient equipment, even though it will save them money in the long run. At Budderfly, we know this first hand, which is why our mission is to help franchisees reduce their energy consumption with new, top-quality equipment—at no upfront cost to them.
To learn more about franchisees and the struggles they’re facing, we surveyed hundreds of franchise owners and managers across the U.S. We’ve put together a report that offers interesting data around how franchisees are approaching sustainability and energy efficiency and their top financial and operational issues.
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