Should You Buy a Franchise During an Economic Slowdown?
Updated: May 3
Contrary to what you may be seeing on the news, not all businesses have been affected
by the current depressed economy, and in fact, many have flourished. There are many companies, including franchises, that do well in both up and down economic climates. If you have thought about owning your own business but have been waiting for the economy to improve, you may be missing the boat.
There are many advantages to buying a franchise business today. Here are four reasons why now is a great time to buy a franchise and a few tips to consider when doing so:
1. Good Employees Are Out There
With the recent impact on the employment market, owners can find and retain great people to help start and grow their businesses. Whether your new franchise requires IT, marketing, sales, or skilled labor positions, you will have more people to choose from in the current economy. Even better, you will be creating jobs and helping your community!
2. Interest Rates Are Low
A weak dollar usually means lower interest rates. You'll need to have some cash in hand to buy a franchise, but many business owners borrow most of the capital required for their project. You'll need a credit score at least in the 700s (the exact number depends on the lending institution) to qualify. So, if you are ready to become a business owner, do not wait for rates to rise. A low-interest rate will mean more money in your pocket.
3. Money is Available
Many banks recognize that a franchise purchase is a "safe" investment. While start-up businesses are deemed risky, financial institutions know franchising has a good record of success, as evidenced by pre-approval of these brands on the SBA Franchise Directory. Therefore, even in a weak economy, banks are willing to provide loans for franchise purchases.
If you need help finding a bank that specializes in franchise lending, contact a franchise financing company – they can assist you in researching various options. We work with many of these firms and are glad to make an introduction for you.
Here are some other reasons buying a franchise is considered a safer investment than a start-up:
A well-tested business model
Comprehensive operations manual
Thorough initial training
A company dedicated to the success of the franchisee
Proven marketing systems to drive awareness and customer acquisition
Ongoing support and training
4. Lots of Business Property Available at Reasonable Prices.
Prices for leasing or purchasing a business location can fluctuate along with the economy. It is a buyer's market, but as the demand for space increases, so will the cost. In many cases, we see lower rent and higher tenant allowances, but deals are happening quickly. In short, if you find a reasonable price in a good location, take action. Your franchisor should be able to help you choose which property and location will be best for you, but you may also want to hire someone to check out the terms of your purchase or rental agreement to ensure you are getting the best deal possible.
If you genuinely want to be your own boss, steer your course, and take control of your
career, this is an excellent time to buy a business, primarily if you invest in a solid franchise with excellent training and support.
Here are some tips for buying a franchise business:
Pick a recession-resistant business
Look for one with a low start-up cost
If your credit is not great, clean it up now - you will need it to qualify for a loan
Do not discount service businesses because they are not "sexy." They are among the best values among franchises because of their lower entry cost, high demand, and good margins
Stay within your budget. One of the main reasons for the failure is undercapitalization
Search for an established brand with numerous franchisees, which gives the bank plenty of data to ascertain the overall potential of the business
Read the Franchise Disclosure Document (FDD) and other documents carefully
Your best source of information about a franchise opportunity is the existing franchisees. Use this resource wisely to get an accurate view of the business model and potential
Choose carefully. Unlike a job, which you can change at will, you will need to stick with your franchise purchase to appreciate the return on your investment
I've seen a lot over the past 30 years, both as a franchise owner and as a consultant. If you are interested in learning more about business ownership, give me a call. I'd love to hear your story and help you figure out if franchising makes sense for you!
Don Taylor, Franchise Consultant
Schedule a call: www.calendly.com/myfranchoice