Franchises in a Bad Economy
How Is the Current Economy Affecting Franchise Chains?
As you look around for the right franchise opportunity, you will want to consider how the current economical situation is affecting the franchise opportunity you are thinking about.
Some franchises will be affected more than others, and it is even possible that some are almost ready to collapse – and some already have.
One of the best ways to make this evaluation is to watch the stock market and see how it affects the larger franchise chains in the business you are interested in. You do not want to rely solely on the advice of the franchisor – because they are still very interested in selling you a business – at a high profit margin for themselves.
Watching for news about particular industries will also let you know how some franchises are doing in tough economic times. In some cases, franchises may actually do better than other businesses because they often are already proven business models. Lenders know this, too, and are more likely to lend money to a franchise than they are to an unproven business.
Another place to look is to discover which franchises are among the top 10 – or top 50, etc. While some of these results may be subjective, ones that stay near the top on different surveys are probably a good choice. Be careful, however, of new franchises that do not yet have a track record over a few years. In times of economic downturns, you need something that is proven, stable, and adjustable.
After you are satisfied that a particular field is doing well, then you can look at the various franchise opportunities. Once you select one, then you can get a Franchise Disclosure Document (FDD).
This document is governed by law and its contents will be the same for any franchise.
An FDD will give you an overview of many aspects of the company. In it you will find a lot of financial and historical information, recent franchise openings and closings, reasons for closings, and much more. Where the results are not clear to you, you certainly want to ask questions to someone at the company who can answer them for you satisfactorily.
One more step that will help you decide which franchise opportunity may be good in tough times is to make sure you do your homework in researching your market. Actually do the footwork and talk to people in your community as you prepare your business plan. Don’t take shortcuts here, because it will give you the information you need to determine beforehand the value of your franchise in that community. Discover, too, if you are going to receive a protected territory from the company, which will add to your franchise’s future stability.
Some types of businesses are more or less recession-proof. That is, they provide services that will always be needed whether or not money is tight. You may want to consider this avenue if you are overly concerned.
If you still want a way to ensure that your franchise opportunity will succeed and can afford it, then you may even want to buy an existing franchise business that is doing well now. There are plenty of these around and the current franchisee may simply want to retire or get into a new business.