3 Top Challenges Facing Franchise Owners in 2024

While there’s been plenty of economic uncertainty at the start of 2024, franchising has continued to prove itself as a stable industry. Despite inflation, labor shortages, and rising interest rates in 2023, the franchising industry either met or exceeded expectations for growth. Although 2024 will be a transitional year for the U.S. economy, franchising is projected to grow in the midst of it.  

Franchise Considerations in 2024 – What’s Happening?

The Election 

While there are many reasons the stock market could fluctuate, the upcoming presidential election is certainly one factor to keep an eye on. It’s also important to realize that the results of an election will often have a greater impact on franchising in the following year – in this case, 2025. 

The 2024 Franchising Economic Outlook, a report published by the International Franchise Association (IFA), emphasizes this:

“Throughout the year, the U.S. presidential election is expected to cause short-term fluctuations in the stock market. The results of the election and its ensuing policies will have a significant influence on franchising in the latter half of the year into 2025.”

High Interest Rates  

The IFA report continues to say that “relatively high interest rates will continue to be a drag on business activity, and labor also remains a significant concern in 2024.”

Labor concerns aren’t anything new. In fact, a 2023 IFA Survey reported: 

  • 47% of franchisees cited labor concerns as their top issue
  • 59% of franchisees see labor challenges as a significant barrier to growth

The IFA report also elaborates regarding the impact that past and future interest rates will have on franchising in 2024. In 2023, high interest rates led to a decrease in private equity (PE) investment. Factors such as an adjustment of price expectations and projected interest rate cuts will likely increase PE investments in 2024, but not significantly. While PE companies will be selective in their investments in 2024, their interest in franchise is expected to continue. 

Minimum Wage Increase 

Another challenge that franchising will face is at the state level. In 2024, 25 states are raising the minimum wage, which will naturally increase the cost of labor. California, New York, and Washington will see the largest increase in minimum wage standards. 

The IFA report expands on this point stating that: 

“Franchisors and franchisees are less concerned about labor shortages as the main challenges have shifted to the cost of labor due to wage increases, which have increased at an annual rate of 5%-7% over the past few years.”

Ready to Buy a Franchise? 

These challenges will certainly make some people question the decision to own a business. Fortunately, the franchising industry has proven to be resilient during times of economic uncertainty. There are many reasons why this is the case, a few of which include: 

  • Proven business model 
  • Shared risk & support
  • Consumer loyalty & brand recognition 
  • Adaptability & flexibility 
  • Economies of scale 

If you’re ready to get started, FranNet is here to help. Our expert franchise consultants will match you with the right franchise opportunity and walk you through the process from start to finish. Schedule your free consultation today! 

Mar 31, 2024