Creating Black-Owned Businesses and Jobs Through Franchising

Written by Jason M. Murray

July 16, 2012 - Categories: Franchising

Black-owned businesses should be one of the engines driving job creation and growth in the United States economy. According to the 2010 Census, Blacks in the United States total nearly 39 million or approximately 12.6 percent of the total U.S. population. Recently, the black unemployment rate rose to 14.4 percent. This rate was an increase from May 2012, when unemployment in the Black community stood at 13.6 percent. As a whole, the nation's unemployment rate is 8.2 percent and reflects no change from where it stood in May 2012. According to many pundits, the rise in the black unemployment rate should be attributed to more Blacks entering the workforce rather than to job losses or more people out of work. Over the last 28 months, the private sector has added over 4.4 million jobs. However, even when the unemployment rate for Blacks was 15.6 percent in 2009, Blacks in the U.S. had a collective purchasing power of 910.4 billion according to "The Multicultural Economy 2009", a University of Georgia study. In the past few years, major studies have concluded that Black communities and urban markets remain underserved because retailers misunderstand the potential of these markets. These markets are incredible opportunities for Black entrepreneurs seeking to establish businesses and create jobs.

In 2007, more than 1.9 million Black-owned businesses generated nearly $136 Billion in economic output to the U.S. economy and created about 910,000 additional jobs according to the latest published U.S. Census Bureau's Survey of Business Owners ("SBO"). Given that Blacks make up approximately 12.6 percent of the U.S. population and have a buying power of more than 910.4 billion, it comes as no surprise that franchisors are actively seeking out Black entrepreneurs as prospective franchisees. Accordingly, the franchise sector has become an important part of the Black-owned business community, and franchising represents an enormous opportunity for Black entrepreneurs.

There were more than 828,000 franchised business establishments in the United States in 2007 and franchised businesses provided over 9.1 million jobs or 6.2 percent of the U.S. private non-farm workforce in 2007. Franchised businesses produced goods and services worth $802.2 billion or 3.4 percent of private non-farm economic output in the United States in 2007. In a recent report commissioned by the International Franchise Association Educational Foundation, the U.S. Census Bureau's 2007 SBO was analyzed to determine, among other things, the following: 1) what percent of franchised businesses are owned by a minority group member; and 2) what percent of minority-owned businesses were operated as franchises. The report, "Franchised Business Ownership, 2007: Minority and Gender Groups", shows that some Black entrepreneurs have utilized franchising as a vehicle to expand their wealth. According to the report, Blacks owned 4.9 percent of all franchised businesses compared to 3.6 percent of non-franchised businesses.

Because of the under-representation of Black franchisees and the fact that the Black community is currently underserved by franchised businesses, an increasing number of progressive franchisors are trying to attract and support more Black franchisees. Progressive franchisors have developed financial incentives and diversity programs to lower or remove the most significant threshold barrier to minority entry into franchise systems – the lack of financial resources. To lower or remove financial barriers, some progressive franchisors have offered some of the following financial incentives: 1) discounts on the initial franchise fee, 2) financing of the franchise fee to first-time minority buyers, 3) waiver of royalty fees during the first year of operation, and 4) attractive loan rates for financing the development and construction of a new franchise location.

The National Minority Franchising Initiative ("NMFI"), an organization whose sole objective is increasing the number of minorities in franchising, recently completed its fourth annual survey to determine the progress of minorities within the franchising community. As a result of the recent survey, the NMFI selected "50 Top Franchises for Minorities." The inclusion of these 50 leading franchisors in the area of diversity was based on their overall minority recruitment program, the percentage of minority franchisees currently within their system and the percentage of minorities in key positions within the franchisor's management. During the last quarter of 2011, NMFI announced that the ten franchisors that scored the highest in its survey are the following: 1) Coverall; 2) Bonus Building Care; 3) JAN-PRO Cleaning Systems; 4) Vanguard Cleaning Systems; 5) Stratus Building Solutions; 6) Church's Chicken; 7) Jack in the Box; 8) Auntie Anne's; 9) Anytime Fitness; and 10) Liberty Tax Service. Each of these 10 top franchises for minorities has in excess of 1,000 operating units and over 33 percent of their franchisees are minorities. The NMFI's list of "50 Top Franchises for Minorities" is a good starting point for Black entrepreneurs seeking to start a Black-owned business.

Despite the current challenging economic environment, franchising offers opportunities for Blacks to go into business for themselves and become small business owners. As business owners, Blacks can create their own jobs and become employers that hire others in their community.