I’m a glass half full guy, but last week I spent half an hour on the phone with a franchisee candidate who was certain the sky is falling. He talked about how terrible the world is right now, how dark the economic forecast, and how much of an uphill climb the near future will be for anyone thinking of investing in a business. His worries and fears—like monsters in the dark—seemed to grow and get more intimidating by the minute.
Any candidate’s concerns are important to me, and I was challenged by this worry.
Was this candidate right? Should I be concerned? Should everyone?
Around the same time, I had a counterpoint experience. I bought a new family minivan—a transaction unlike any other car-buying event in my lifetime. The salesman told me there was a chance I might be able to secure a new van if I was at the dealership, in person, the morning they were expecting new inventory. I might be lucky enough to get this vehicle for the manufacturer’s suggested retail price (never mind that paying MSRP had always been, in my mind, a failure on the buyer’s part). I might even get my choice of color, but I should not count on it, because as it turns out we are in the midst of an uber-competitive car-buying market.
In the end, I got the car—gladly forking over a deposit on a full-price contract that put me on a waiting list for a van of any color. Most of the potential buyers at the dealership that day? They left with their money still in their pockets and no line on a new vehicle.
So which is the economic reality? The media-driven fear of dark days ahead, or the frenzy of buyers competing to plunk down tens of thousands of dollars for the privilege of buying a new car? As with most things, the truth lies in the middle.
By any measure, this is a year of economic change. It’s a year when some investors are seeing for the first time that the stock market goes down as well as up; and that interest rates go up as well as down. It’s a year of inflation, and a year when we’re seeing investor caution after a long stretch of gung-ho engagement in a booming stock market.
All of those things are noteworthy, so it’s no wonder financial news sources (especially those working to generate 24-hour-a-day content) are sounding alarm bells. These changes give them a lot to analyze; a lot to talk about.
Here’s the thing about economic change, though: it’s easy to get laser focused on a single factor and lose sight of the big picture. To gain that perspective, you’ve got to consider a range of fundamentals—not just in terms of how they compare to last month or last year, but how they hold up to decades of data and economic trends. You’ve got to put doomsday announcements in the context of everything we know about money and investment—especially if you’re considering franchise investment.
So let’s look at a few facts:
The State of Stocks
Since 2009, the stock market has been putting up historic gains. Even after a quick, hard drop in early 2020 at the onset of the pandemic, it rallied to reach new highs. So much money has been made in this sector alone that there are a lot of investors out there who may have forgotten that just like there’s a time to put money on the table, there’s time to take it off. Expert investment managers have been calling for clients to reassess and reallocate throughout 2022. If you haven’t already done so, isn’t it time to shuffle some assets from stocks to bonds and income-producing business investments? If you’re considering franchise investment, keep in mind that your end game isn’t just engaging in another asset class—it’s also creating another income stream. That’s an investment objective that’ll never go out of style.
Liquidity
The average household savings rate in the US hit all-time highs in 2020 and 2021. This year, with the economy back in motion, people are spending again and the savings rate is dropping back to a more traditional range. But thanks to all that saving—in conjunction with the major stock market boom—there’s a ton of liquidity in the economy right now. A lot of money on the sidelines means a lot of loans waiting to be granted, a lot of spending, and a lot of momentum. If you want to invest in a business, this is inarguably a great time to get access to capital.
Eyes on Interest Rates
The headline is that interest rates are on the rise. This is true. What’s also true is that interest rates remain historically low. For most of the past century, Americans would have jumped for joy to borrow at the rates that are readily available at this writing. This is a matter of context—and when you look at the big picture, borrowing for a business is still a tremendous bargain in 2022.
Pent-Up Demand for Goods and Services
After two years of Covid-19-related restrictions and living smaller and more private lives, Americans are eager to reengage with the outside world. Consider sold-out vacation destinations. Restaurants where you can’t get a reservation. A huge back-up of demand for home improvements and services. Car dealerships offering thousands of dollars over Blue Book for used cars they can resell—sometimes for more than new vehicles. So many people have been sitting on the sidelines, waiting—and we’ve all missed going places, doing things, and having services at our fingertips.
So what’s the outlook for a potential franchisee? This is a time to keep your eyes open, to be aware of shifting economic sands. But it is decidedly not a time to freeze up, to let your fears run rampant, or to buy into prophecies of doom and gloom. Instead, focus on your aspirations, on your goals, and on the opportunities at hand. Many franchises have evolved right along with the rest of the 2020s economy, becoming leaner, smarter, and more strategic. This is an excellent time to look at your options.
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Pete Gilfillan is a leading franchise consultant, entrepreneur, and author of the best-selling book HIRE YOURSELF: Control Your Own Destiny through Franchise Ownership.
