Economic update and the potential for franchising

National Australia Bank  (NAB) Group Chief Economist Alan Oster is predicting Australia will not go into recession but economic growth will remain very flat, slowing to 2.25 percent in 2009.

"Australia is showing a rapid slowdown according to our business confidence surveys but last month the downturn stalled," Oster said.

"The key issue now is the fall in commodity prices and the lower equity markets."

In order to stimulate the economy the Government is expected to spend big in 2009 while the Reserve Bank of Australia will continue to cut rates.

"We are predicting a 50 basis point fall in November this year and another 50 point basis point cut in March 2009. Then the RBA will see what happens to the economy with these cuts. We expect cash rates to be at 4.5 percent by the middle of next year," Oster said.

With a forecasted flat economy and higher business costs, NAB is predicting unemployment will reach six per cent in 2009.

Amidst the turmoil, franchising is still one of the most robust business sectors. Australia has approximately 1000 franchise systems in operation which is an impressive number per capita. With 14 percent of Australia's gross domestic product (GDP) being generated by franchise units', the success of franchisees is essential to the national economy.

"There's a positive outlook for the sector despite the downturn and we as a bank are still seeing enormous potential for growth in this market" said Barry Thatcher, National Manager, NAB Franchise Banking.

"But as a franchisor, success and survival is not a given and heavily depends on the quality of your system."

Now more than ever franchisors need to be adhering to the fundamentals of good business — recruiting good franchisees, selecting the right sites and keeping on top of brand and product development.

"And once you have built that quality system you should really be focusing on growth through expanding the quantity of your franchisees," Thatcher said.

Expanding a franchise system by adding new sites in key areas is the best way to fast track growth and success with minimal risk.

According to NAB, it is also wise to offer new sites to existing franchisees who have the proven management skills, system knowledge, operational skills and can hit the ground running with a new franchise.

"Offering your existing franchisees new sites is a smart thing to do in a tight labour market. It's becoming increasingly difficult to find quality franchisees, so when you do, keep them", says Thatcher."

"And by offering your franchisees new sites you will in turn be offering them an opportunity to grow by becoming multi-site operators and accumulate greater wealth."

This article appears courtesy of The Franchise Review