Is a Recession the Best Time for Franchises?

Posted by HIRE YOURSELF on Feb 11, 2020 7:00:00 AM

Some of the things we fear and despise are inevitable.

Like death. And taxes. And economic recession.

Despite the fact that we’re always pushing back on the possibility of recession with things like managed growth and interest rate manipulation, the reality of our economic cycle is that for every up there’s a down. Both expansion and contraction are par for the course.

According to the National Bureau of Economic Research, there have been 33 recessions—defined as at least two successive quarters of economic decline—since the mid-1850s. The last one ended in 2009, which means—as we’ve been hearing economists shout from the rooftops for a while now—statistically speaking we’re overdue.

Podcast Episode: Is a Recession the Best Time to Franchise?If you’re a prospective franchise investor, the idea of a looming recession can be a serious consideration. What does it all mean for a prospective franchise owner who’s considering taking a hard-earned nest egg and investing in an entrepreneurial endeavor in the coming months or year?

In a nutshell, it means you need to be thorough in your research and careful in your planning—just as you would in any phase of the economic cycle. The HIRE YOURSELF consultants have weathered both economic boom and bust, and their experience has honed their understanding of the 5 major considerations during this process:

1. Due Diligence Always Matters in Franchising

Regardless of when or why or how much you invest in a franchise, the importance of doing your homework is always a critical part of the decision-making process. Most of the questions you need answers to are virtually the same when the economy is in the midst of a downturn as they are when it’s booming.

One of those questions for your franchiser is simply: How are you prepared for an economic recession? If the answer is, “gee, that’s never crossed our minds,” or “we are 100% recession-proof and don’t need to plan” . . . then maybe you’re not talking with The One. Chances are, though, if the management team has the kind of longstanding track record of success and solid guidance you’re looking for in franchise leadership, they will have thought it through and be able to answer that question (and any others) with confidence.

No business is 100% recession-proof, but the ones that hang in for the long term game out strategy for all sorts of hard-luck scenarios—and one of the most obvious and necessary among these is economic recession.

2. Consider the Franchise Industry

One of the most important things to remember about franchising is that it’s not an industry. It’s a business model; and it’s one that has been successfully applied in hundreds of industries across the US and around the world. If you’re assessing a franchise investment, consider both the effectiveness of the business model and the resilience of the industry.

If the idea of recession is scaring you off, investigate the history of the industry during periods of downturn. The fact is, some sectors are notoriously recession-resistant. Just a few of these are health care, child care, elder care, fitness, food and beverage, repair services, and business services.

No industry comes with a guarantee, but many have long histories of surviving and even thriving in troubled economic times. If the vast numbers of options feel overwhelming, a franchise consultant can help pinpoint a field and opportunity that meets your criteria and has strong odds of long-term success.

You may also want to consider a franchise resale. These are businesses that are already up and running and have cash flow. This can be a more secure bet in and industry.

Jim's Success: A Corporate Downsizing Case Study3. Know You Can Ride the Wave with Franchising

Recession impacts all areas of the economy in one way or another, and one thing entrepreneurs of all kinds—including franchisees—have going for them is that they tend to be more nimble, more creative, and more determined to cope with crises than big and slow-moving corporations. It seems to be practically in an entrepreneur’s DNA to want to figure out a way to survive and thrive.

If you are the kind of person who is drawn to controlling your own destiny, to investing in your own success, to taking the kind of calculated risks that lead to business ownership, then you are also likely to be an independent thinker who’s able to handle economic changes as they unfold. If economic change is a wave, then entrepreneurs are surfers—able to swim into the force and harness it for their own purposes.

Big corporations don’t have that agility. They rely on being able to withstand the force, making slow and incremental adjustments to their form and function over months and years, hoping they’re not toppled over or eroded away by the water.

What to Learn More About Being Recession-Proof? We Recommend Reading This Book.

4. Be the Boss (aka the Franchisee)

One of the simplest and most important truths about being an entrepreneur rather than an employee during a recession is that entrepreneurs make the rules rather than follow them. If you own a business in dark times, you may need to get lean to stay profitable. You may have to work harder.

You may find yourself plumbing new depths of your creativity, agility, and leadership skills. The thing about owning your own business, though, is that when you’re the boss, you will never show up at the office and learn that someone, somewhere above you in the corporate chain, has decided it’s time for you to be fired or retired.

This kind of job security, earned through your investment, is one of the most essential and defining features of being an entrepreneur.

5. Take the Long Look at the Franchise

Recessions are created by cyclical elements we can’t necessarily control, but they are deepened by people freaking out about the possibilities—making a significant recession in many ways a self-fulling prophecy.

Business ownership is about long-term goals, and one of the shared characteristics of the most successful and enduring entrepreneurs the HIRE YOURSELF team encounters is the ability to focus on what they can control. These are investors who understand that they can’t control the economy. They can’t control the politics. They can’t control the fate of any company but their own.

Acknowledging those limitations, they focus on choosing proven concepts, working with known and respected franchisors and management teams, creating and leading outstanding work groups, and committing to providing products and services that are indispensable to their consumers.

When all those things happen, a lot of the uncertainty of economic swings falls away.

Wanting to better understand how to choose a franchise that can withstand the ups and downs of a cyclic economy? We are here to help you with a free consultation.

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Topics: Franchise, recession

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