Finding Franchise Opportunities in Today's Economy
Tough economic times are not only upon us, they're likely to stick around for awhile. While the fundamentals of the U.S. and global economies are struggling as 2008 draws to a close, the election of a new U.S. President could have a powerful positive impact on the current crisis of confidence - and pry loose some of the financing from nervous lenders.
The shakeup in the economic environment also means opportunities for those smart enough to figure a way to find the nuggets and prosper in these troubled times.
For franchisees, whether single-unit owners just starting out or multi-unit operators with a healthy cash flow, knowing where to look is the key to success.
Service sector brands focused on everyday needs are one place to start. These include such basics as hair cutting salons, and home maintenance and repair (painting, plumbing, electrical, HVAC, lawn care, flooring, and handyman services). Automotive service and repair, from oil changes and tune-ups to body work and rim rentals, also tend to stay steady in tough times.
Business services will always be in demand. Franchises offering tax preparation, accounting, computers, legal, and equipment leasing, for example, are evergreens. Some of these services might even be in greater demand as cash-strapped small businesses lay people off and outsource more of their business functions.
As consumers spend less on luxuries and look to save on necessities, dollar stores and used or recycled clothing stores have become more attractive. Rental concepts also are an option for cash-strapped consumers no longer able to purchase expensive items such as high-definition televisions, computers, large appliances, and furniture.
Personal services have remained strong so far, and look to continue. These include child care and supplemental education (art, math, gyms); senior and elder care (home healthcare, nursing, assisted living placement, and legal services); as well as fitness centers for adults (whether a traditional health club or the growing number of concepts providing one-on-one personal trainers).
Reductions in disposable income have been a boon for lower-priced food concepts. Fast-food brands across the nation are offering a growing number of products for less than a dollar. They're also touting value in terms of "bite per buck," adding new menu options, and going the extra mile with customer service. Healthier foods are coming on strong, from probiotic, low-calorie frozen yogurts to trans fat-free fries.
And nothing seems to stop Americans from spending a-plenty on pet care, from mobile washing services to dog walkers, dog sitters, dog spas, and even doggie cleanup.
Some new concepts are springing up as well, but will they "have legs" when the economic picture improves? Franchisees generally sign on for 10 years, so think twice before investing in brands focused on such things as credit repair, foreclosure workout, to one West Coast company specializing in wrapping buildings and other structures put on hold by the construction slowdown. Crisis-generated businesses may look good now, but think 5 to 10 years out.
As franchisors face the continued economic slowdown, franchise buyers with money, operating experience, and a track record of success are in the catbird's seat and able to wrest more favorable deals and concessions than in previous years.
Franchisors pressured by slower unit growth are increasingly looking for innovative ways to help franchise candidates sign on to open new units. Some of these include:
- Reduced franchise fees
- Lower royalty payments in the startup years
- Financing assistance
- Special programs or time-limited offers
- Help with build-out
Landlords facing the reality of Big Box anchor stores vacating malls and pulling smaller retailers with them are also offering deals. Smaller franchise brands, traditionally unable to compete with larger, more established names for "A" locations are now faced with an interesting dilemma: "A" locations are becoming available at reduced prices - but do they still want to set up shop in what may be a dying mall?
As prime real estate becomes available and landlords look for good tenants, franchisees should be able to:
- Find better locations
- Pay less for top sites
- Negotiate better lease terms
- Get landlords to pay for build-out
To review, today's franchising arena is "fraught with opportunity," if only you know where to look - and are willing to ask for what you want and walk away if you don't get it. Some final tips for opportunity seekers:
- Shop "recession-proof" industries - Customers can cut back on discretionary spending like eating out or even home improvement, but services such as hair cutting, home repairs, auto maintenance, child care and education, and senior services continue to thrive.
- Find the better franchisors - Lenders that used to look only at the credit, collateral, and experience of potential franchisees are now looking at the finances of the franchisor too. Brands with strong cash flows, satisfied franchisees, more units operating, and a track record of success tend to ease the worried minds of lenders. Older brands also have established relationships with lenders, making financing easier.
- Think long term - Business concepts aimed at taking advantage of the recession are springing up, but where will they be when the economy recovers?
- Do what you love - Love animals? Then why open a tax service? Love numbers and quiet? Then why open a restaurant or child care center? There are more than 3,000 franchise brands out there. That's a lot of opportunity for the informed, educated, and savvy buyer.
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