These certainly are uncertain times. The pandemic, war, inflation, and more and more talk about a recession. Is it any wonder that more and more people are worried about their job and their income? In times of uncertainty, a franchise can be a wise investment. By owning your own business, you will have more control over your job and income. Here are some things to consider when investing in a franchise in uncertain times.
One of the first things you will want to consider is what business sector the franchise is servicing. Some business services are discretionary in nature whereas others are necessary. Examples of necessary business services are : hair cutting, commercial cleaning, tax preparation, automotive, senior care, child services, pet services, and home services such as property restoration. Necessary services will fare much better when the economy tightens. However, for any business sector you are considering, it is well worth the time researching how the sector performed during past economic downturns.
Another thing to think about is the revenue source. When and how the business revenue stream is generated is an important consideration. Some businesses are seasonal such as lawn-care, mosquito control and holiday decorating, so there will be periods of time when work is not being done and revenue is not generated. Also, some businesses generate transactional revenue as opposed to recurring revenue. Transactional revenue is generated for a one-time payment for a one-time service such as a kitchen remodeling service. Recurring revenue allows a business to generate a steady, consistent revenue stream month after month such as child tutoring service. A steady revenue stream will greatly reduce the impact of the ups and downs of an uncertain economy.
Also, there are emerging franchises and established franchises. Established franchises have had time to refine their systems and processes, which is very beneficial especially in a down economy. Furthermore, established franchises have a performance track record that can be evaluated in different economic environments. On the other hand, emerging franchises may still be in the process of fine tuning their processes and procedures, and there will probably not an extensive performance record to evaluate. This does not necessarily rule out emerging franchises, but it does raise a flag of caution.
Due diligence is very important anytime you are looking to invest in a franchise. As part of the due diligence process it is important to have a candid discussion with the franchisor about their thoughts and plans in case of an economic downturn. If the franchisor is evasive or dismissive of this, it should be taken very seriously into consideration. Also, the Franchise Disclosure Document includes the franchisor’s Financial Statement. It is highly recommend having an accountant review the statement and give a qualified opinion on the financial health of the franchisor.
In summary, there are signs that the economy is pulling back. Therefore, it is not unreasonable to expect job cuts and corporate belt tightening in the near future. For many people where job security is completely out of their control, franchise ownership should not be discounted as a career option. In fact, there are franchises that are very successful in down economic times giving their owners control of their job and financial security. For many, this can be the right time for the right career transition into franchise ownership.
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