When the economy is in the doldrums you may start to wander about your prospects of buying a franchise in a recession.
It is often prompted by the fact that job opportunities are hard to come by and you need to do something. Thus, an idea comes up to turn to franchising.
Three are a number of reasons to consider buying a franchise in a recession:
- Franchising offers a safer bet than starting out on your own
- Industry experience is not a requirement to operate or finance a franchise
- You are buying a proven system that should have a plan for how to operate in a down economy
- You receive a disclosure document (FDD) describing your investment in detail
- No matter if you are buying a franchise in a recession or not, you get a chance to interview existing franchisees who can share their experiences
So, as you can see, everything mentioned above alleviates some worries about buying a franchise in a recession. However, you will still be facing a number of risks, among them:
- Financing is much harder to find in a recession. Be prepared to provide a hefty downpaymet (at least 20%) and come to the process well organized.
- If the franchise you are considering is relatively new, it likely did not have a chance to experience a downturn before. Can you find out how that particular system will behave in a recession?
- It will cost you time and money to find the right franchise, perform due diligence, interview existing franchisees and arrange financing.
- Once you buy a franchise it may take you a few months before you will open for business. If you just need income, getting a job is much quicker.
- Yes, cash flow is a challenge. When buying a franchise in a recession it is especially important to be prepared to NOT be able to take out money from the business for a while. Try to put together a conservative cash flow statement in order to avoid financial disaster.
As long as you are prepared to deal with the negative factors mentioned above (in addition to ones that probably apply to your unique situation) it is well worth it to buy a franchise in a recession.
Of course, downturns do not last forever. If a franchise has a good track record of success, you can count on your business to pick up once the economy improves.
Plus there are a number of factors that can contribute specifically to your decision to buy a franchise in a recession:
- If you need a location, space is readily available in a recession
- Labor, overhead and marketing costs are also lower during the downturn
- Franchisors are more open to a negotiation on fees, territories and financing
- Recessions help weed out weaker competitors, clearing a way for a solid franchise system
- You can usually take advantage of lower interest rates
As you consider the time it takes to investigate and buy a franchise, look at it as a positive. By the time you finish the due diligence process, arrange financing, go through training and build out your location months will go by and the economy will be stronger.
The most important thing is to stay committed to the process. If you are set on becoming a business owner, franchising offers thousands of opportunities to fulfill that dream.
One more thing to remember, there are no recession proof franchises, no matter what anyone tells you. However, some franchise businesses are recession resistant and hold up better in a down market.
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