2018 franchise business economic outlook

February 9, 2018

Blog Post

According to a published report from the International Franchise Association, the Tax Cuts and Jobs Act (TCJA) cuts the corporate tax rate from 35 percent to 21 percent, thereby benefiting franchises and other businesses by giving them a lower tax rate. As the rate cut is permanent, the TCJA provides franchises and other businesses with a predictable tax environment for the foreseeable future.

Starting and running a franchise business is not without its risks. The franchisee is under pressure to generate a healthy turnover and make the business a success. The Franchise Business Economic Outlook estimates the growth across franchises in 2018 will pick up to a strong 3.7 percent in employment and 6.2 percent in output. The report therefore provides franchisees and those thinking of investing in a franchise business with confidence that the market is buoyant and consistent with the overall improvement in productivity and the economy.

International Franchise Association President and CEO Robert Cresanti spoke of the benefits tax reforms are having on franchise businesses in a release accompanying the report.

“Over the last year, Congress and the Administration have set their sights on removing the barriers and brakes holding our economy back and stifling job creation. Regulations have been trimmed, taxes have been cut, and, as a result, the franchise community has continued its economic momentum,” said Cresanti.

The key finding of the report is that franchise establishments are expected to grow by an additional 1.9 percent in 2018 to 759,000. Alongside the growth in franchise businesses, franchise employment is forecast to grow by 3.7 percent, continuing to outpace the rest of the U.S. economy.

This decision only adds to to the growing circuit split on the application of the “hypothetical test” or the “actual test” in bankruptcy, and may lead a higher court to consider the issue. For franchisees in the Sixth Circuit who desire to reorganize in bankruptcy, however, this decision provides clarity about which test parties may use to determine if a contract could be assumed.

This ruling reveals the limits to the rejection power of the Bankruptcy Code. While a bankrupt franchisee can use bankruptcy to unburden itself of future monetary liabilities due to a franchisor, such franchisee cannot completely rid itself of those bargained-for equitable remedies that are there to protect the integrity of the brand and the confidential, proprietary information that the franchise arrangement is designed to protect.

2018 franchise business economic outlook

You may also be interested in