I was asked yesterday whether the current economic climate is the right one in which to buy a franchise. Equally, the question might be if now was the right time to franchise a business. We’re facing challenges as a country and maybe we should take that into consideration.
First off, I’m not an economist. I also don’t follow the stock market and I don’t like Politics. This is not an accurate financial response to those who need empirical data. But I do love business, and in particular, franchising. And so here are my thoughts on whether NOW is the right time.
When I first became a franchisee in 2006, it was in the lettings market. The property market was very strong and 2006 was a record year in the industry. The UK property market fell fast and far when the global financial crisis erupted in 2007, resulting from a subprime US mortgage market which was stuffed full of risky loans. This actually boosted lettings – so not all doom and gloom. But it came with it’s own struggles – all of which the older industry specialists had seen before.
The property market has seen many challenges in various guises – not just the economy, but legislation and attitudes to property ownership. All of these challenges have been weathered by, and helped change, many franchises.
Being part of a franchise at the point of ‘crisis’ can be a huge benefit. We were able to access the learning of the franchisor and the franchisees who’d seen it and lived through it before. And that value was what we bought when we paid our license fees.
I then franchised a business – in chimney sweeping. People said the timing was wrong – there was no demand. At the end of our first year, we had 4 franchisees sweeping over 1000 chimneys. Demand was, and has remained strong, through recession, through Covid and despite it being an old-fashioned trade. If we hadn’t built a strong model, had empirical evidence of success through good and bad times, we couldn’t have realistically justified franchising.
That’s the nub of the answer to this question. You’re buying into a business. Due diligence should prove that their business has traded profitably, through different financial climates, and variable market forces.
There are businesses that are ‘fads’ – who remembers the foot nibbling fish? And there are unsound business models. But if a business has launched as a franchise in a bona fide and ethical way, they will already have the answers to slowing trade or higher interest rates, because they’ve experienced it.
Don’t confuse trading through Covid as the necessary structure to be profitable. Covid affected some initially robust business models, particularly in hospitality, which would thrive today, even in a financial crisis.
The value of buying a franchise vs going it alone during this period of uncertainly, should be raised, not diminished.
If the franchisor can guide you through start up in a financial crisis, think how strong you can be when the market picks up. I don’t think you should rush out and buy any franchise in any market – it’s still important to consider the impact on you and on the business – but if it’s been trading successfully for a long time and you like what you see, do your due diligence and you might find that they are a far safer pair of hands than any alternative.
If you’re a franchisor, I think now is the time to dig deep and make sure you know how you can support your franchisees if necessary – how you can help them to continue of the business is fragile. And how you can demonstrate that joining your business now is a safer option.
But these things are true whatever the financial climate – due diligence is critical and putting the franchisees at the heart of the business is invaluable.
