A Business Opportunity for All
Recession. An ugly word. Not a time to consider buying a franchise. Or is it?
Rather than starting a business from scratch, you are buying into a business model and brand that has a history of surviving and thriving during recessions – providing you invest in the right franchise opportunity.
While it can be scary to buy a franchise business in a recession, the payback can be huge. With a resilient business that survives through a recession, you could take advantage of the upswing that comes as the recession ends. According to data from Capital Group, recessions are ‘relatively small blips in economic history’. Further, the average GDP growth in the expansion phase post-recession is 24% over little more than five years.
In this article, we examine the types of franchise you could buy in a recession and whether you should.
Types of franchise ownership
When considering starting as a franchisee, you’ll need to consider the types of franchise business that most appeal to you as an investment or owner operator. You’ll find that you can buy several types of franchise across many industry sectors.
Here are the five main types of franchise ownership that you could consider.
In this type of franchise, you sell and/or distribute the franchisor’s products. You will have use of the branded trademark, but not necessarily all of the franchisor’s systems. Typical examples include:
Technology and computers
Companies like Coca-Cola may also offer franchises that allow you to manufacture as well as distribute the franchisor’s products.
Should you buy a product franchise in a recession?
You must be careful when buying product franchises in a recession. The key here is the product itself. Remember that disposable income will be getting tighter. People with less money to spend refocus how they spend it. If the product is discretionary or luxury spending, then your business may find it tough to make sales because fewer people will have the income to buy luxury products.
If you are considering a product franchise in a recession, then always go for products that people need to buy – personal hygiene, groceries, domestic goods, etc.
In this type of franchise, you take a back seat and employ a team to manage and run the franchise. The most common business that usually falls into this category is hotels.
Should you buy an investment franchise in a recession?
Hotels? In a recession? It’s great to think that you are providing jobs to other people, but you must consider whether you’ll make the sales to sustain those jobs – and your business.
The first two years of any business (including franchises) are the riskiest. If you are entering into a business that may suffer from lower sales than usual – like hotels – you could be asking for trouble.
This isn’t to say that an investment franchise couldn’t make you some serious profit during a recession, but, if you are considering this type of franchise, the rules of disposable income still apply. Make sure the franchise is focused on products and services that people will buy.
With this type of franchise, you convert an existing business into a franchise unit of an existing franchise business. Instead of trading under your own business name, you trade using the franchisor’s trademarks, systems, and marketing. The types of business that may take this route include:
You benefit from the franchisor’s strength, and this could help your business grow rapidly.
Should you buy a conversion franchise in a recession?
This mostly applies to those who already own a business, and want to strengthen it with the franchisor’s brand.
It may be possible to buy an existing business and then convert it to a franchised unit, but you’re adding costs all through the process that can quickly mount up and decimate potential.
The most popular franchise type. With this type of franchise ownership, you operate completely under the franchisor’s brand, using its systems, products, and supplies. You will receive training and ongoing support, and be required to follow the company’s proven business model, procedures, and working practices.
This is the type of business that most people think about when they hear the word ‘franchise’ – fast food restaurants, fitness and gyms, retail stores, and so on.
Should you buy a business franchise in a recession?
If you pick the right business, then this popular franchise model could provide a very profitable recession for you. Again, the crucial consideration is what business to buy.
Let’s take fitness and gyms as an example. People remain concerned about their health and want to stay fit – but is going to the gym an absolute necessity? Not for the majority. However, equipment for home gyms, fitness clothing and equipment, and the like are more likely to retain sales.
The best businesses to buy as a business franchise in a recession? Think health, hygiene, food, shelter, heating, and utilities – and think necessity. If it is something you could do without, then it’s not a necessity.
This type of franchise is less well-known, but potentially offers the cheapest way into a franchise business. Typically, you apply your own skills and experience, and operate as a franchise to a larger business.
Often, this type of business is home-based and small (fewer than five employees). Usually, these types of franchise business provide services such as:
Instead of specializing in your existing line of work, you may also use your existing skillset to develop a related business – like a travel agency or business consultancy, for example.
Should you buy a job franchise in a recession?
Your skills are valuable, and a recession could be the time to profit from them. Essential services like water/mold damage and restoration, auto care, hair care, electrical repairs, and property maintenance will remain in demand. If you are fed up of working for someone else, then now could be the time to start a new business, and a job franchise could be the best strategy.
What type of franchising is best for you?
The type of franchise that offers the best profit potential for you depends on many factors. The first step to take is to take a Franchise Aptitude Test. This only takes a few minutes, and will assess your suitability as a franchisee and provide a good indication of what type of franchise business is best suited to your inherent skills and personality.
After this, meet with New Ground Consulting to discuss the outcome of the test, and learn how to evaluate franchise opportunities. We will help you navigate the route to franchise business ownership, considering your skillset, goals, lifestyle desires, and your budget.
What are you waiting for? The recession will end, and when it does, some of the best franchise opportunities will no longer be available.