With financial pressure on small businesses growing, choosing a franchise that will survive a recession has never been more important.
Perhaps the worst has happened and you’ve been made redundant? You may have little option but to move into self-employment.
However, the good news is that running a franchise significantly reduces the risk associated with setting up alone and most franchises are designed for people to start earning a living quickly.
There are no doubt difficult times ahead for many small businesses. However, at the same time there are always opportunities.
So what are the main considerations in choosing a franchise in the current difficult climate?
Firstly, industry choice is key. The luxury goods sector, and any product or service that is ‘nice to have’ but not necessarily essential, will be the first to take a hit when the consumer tightens the purse strings. The exception to this are luxury goods at the budget end of the scale, and generally, franchises that offer customers value for money or essential services will do better in a downturn.
Secondly, find a franchise where you have confidence that people are buying and will continue to buy the product or service – even if times are tight. Ask yourself: would you or have you spent money on this product or service?
Don’t necessarily assume that cheap, inferior products will always do well. The general public become even more discerning in a recession and will be looking for quality and value rather than just anything that’s ultra cheap.
Choose a franchisor whose fortunes are inextricably linked to your own. This will ensure you’re given more support than with one where you pay up-front for the franchise licence and are then left to ‘get on with it’.
Card Connection is a typical example of this type of business model. A large proportion of the company’s revenue is dependent on the fact that franchisees continue to sell greeting cards, so the staff and head office have a vested interest in helping franchisees grow their businesses and succeed.
Selecting an established franchisor is also important. Companies that have been around a long time will be experienced in managing their business in a variety of financial climates.
You will also be able to assess the company’s performance in the previous recession. Those that survived are most likely to be in a good position to work through difficult times.
British Franchise Association (BFA) members are always preferable as they are required to adhere to a code of ethics which protects you as a franchisee.
When you’re researching franchises examine closely the sales history of the territory you want, and make an allowance for the difficult economic situation and the fact that you’ll be on a learning curve and therefore probably earn less initially.
If figures aren’t your strong point then use an independent accountant to look at the books for you. For what will ultimately prove a modest fee an accountant can provide invaluable advice which may ultimately save you thousands by preventing you making any bad decisions later.
Don’t be frightened to discuss the financial climate with your chosen franchisor. They should have plans in place to cope with the recession and be able to provide valuable and realistic advice about how, as a franchisee, you’ll need to tackle the challenges ahead and how head office will support you.
Most franchises offer the chance to make a good living from a tried and tested commercial idea. However, in a downturn some will inevitably fair better than others, so if you’re moving into franchising then take the time to choose a business that is less likely to be affected as this will protect you and your family both in the short and long term.
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