Franchising News

Franchisees Tie Expansion Plans To Current Tax Rates

Written by Tim Morral
Published: 12/17/2012

If current tax rates expire at the end of the year, it could prohibit growth and expansion in 8 out of 10 U.S. franchises.

Franchisees and small business owners understand the impact tax rates have on their ability to grow their companies. Since most franchisees are working with smaller margins than large corporations, even moderate tax increases can have a dramatic effect on franchise growth strategies.

Fiscal Cliff Impact on Franchise Hiring - IFA Survey

The connection between business growth and tax rates is a subject that is currently on the minds of many of the nation's franchisees. According to a recent International Franchise Association (IFA) survey, 79 percent of franchisees and 73 percent of franchisors are reporting that Congress's inability to extend current tax rates beyond the end of the year will bring franchise hiring and growth plans to a standstill.

"What we need in this country is jobs, and the majority of that growth can come from the small business and franchising community if we avoid diving over the fiscal cliff," said IFA President & CEO Steve Caldeira. "Congress and the administration must find a way to decrease spending and raise revenue without raising tax rates on job creators."

In the absence of new legislation, tax increases will inevitably leave many franchises scrambling for ways to fund expansions, new locations and/or additional hiring. The more likely scenario is that a large number of these franchisees will abandon their growth plans altogether, at least in the short term.

According to Chris Grandpre, CEO of Outdoor Living Brands, Inc., "Small business owners are 'pass through entities' not the "rich". Taxing small business owners will greatly impact their ability to reinvest in their businesses and grow."

Complicating the situation even further is the fact that tax uncertainty has made it difficult for small business owners and franchisees to conduct tax planning and execute end-of-year tax tips, introducing a level of chaos into the 2013 budgeting process.

Unable to reasonably estimate their tax burden going forward, entrepreneurs across the board are facing the same challenges as the nation's franchisees -- and they are simply putting off any major decisions until the tax situation is resolved.

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