What Franchise Should You Buy for Stability and Profit?
In our previous article, we discussed ‘Good Businesses to Start in a Bad Economy’. If starting a business appeals to you, is now the right time to buy a franchise? Here we look at how to choose a recession-proof franchise business, and outline a few ideas.
Be an entrepreneur who caters to needs not desires
First, it’s essential to understand the nature of consumer spending during a recession.
People’s budgets get tight. Their spending habits may be hard to break, but eventually they will. This is when they shift from spending on products and services that they desire to those they need. Hence, the shift from discretionary to non-discretionary purchases often lags the beginning and end of a recession.
Typically, finances deplete faster than they can be rebuilt. This means that changes in spending patterns often happen faster as we move into a recession than they do when coming out the other end.
Therefore, recession-proof businesses often continue to grow faster than they would normally as we exit a recession – this is especially true of service businesses, which benefit from deeper customer loyalty than product businesses.
Factors that determine franchise resilience during a recession
While we talk about recession-proof franchises, it’s only prudent to say that no business is entirely 100% recession proof. Some franchises fail.
There are, however, some key elements that help to make franchise businesses more resilient than new startups in a poor economy. When considering franchise businesses to buy, you should look for franchises that:
Provide a need-to-have product or service
Have a track record of steady growth
Can show evidence of growth through a recession
Have a solid balance sheet
Have a good management team
Offer their products and services at what are considered to be value-for-money prices
Finally, make sure that you have a franchise attorney review the Franchise Disclosure Document and give it their seal of approval.
5 Sectors for your franchise investment during a recession
There are several sectors that you should consider when buying a franchise that can beat a recession. Choose wisely, and you could see the value of your business rise dramatically while others are struggling.
1. Food and beverage
Let’s look first at the ‘humble’ grocery store. People need to eat and drink. They have less money to dine out. Thus, there is more cooking at home. They buy their produce from a grocery store. It’s not only food and drink that your customers will buy. They need cleaning products, personal hygiene goods, and other household items – in good times and bad.
Other food and beverage businesses that tend to do well in a recession – and that may surprise you – include liquor stores, candy stores, and coffee shops. People want a little comfort in a world that is providing little.
2. Real estate maintenance and repair
Spending more time at home, maintenance and repair businesses benefit in three ways.
First, those businesses that cater to the DIY enthusiast who now has time to tackle all the projects they have been planning but putting off.
Second, those who have the time and realize there are jobs that need to be done – but they don’t have the finances to pay others to do them.
These two groups are buyers of products in the repair and maintenance market.
Third, more use of the home tends to lead to more repairs that must be made. Some of these will be beyond the scope of the ordinary person and require specialist services.
3. Auto repair
In a recession, people are less likely to buy new cars; but as autos age, they are more prone to breakdown. Great news for auto repair businesses. The secret here is to invest in an auto repair business that is not specialized, but instead offers full-service repairs.
The population of the United States is aging. By 2040, the U.S. Census Bureau forecasts that the number of people aged between 65 and 80 will increase to 65 million from 47 million in 2020, and those aged over 80 will increase from 7 million to 15 million over the same period.
While the pandemic has increased the demand for healthcare service, the real story is the elongated demand that an aging and longer-living population needs – through good times and bad. Franchise opportunities in this sector include homecare, personal care, healthcare and mobility equipment, and senior citizen homes.
The last two recessions (including the recent pandemic downturn) have been marked by rapid take-up of technology. At the end of the Great Recession in 2011, IBISWorld identified the 10 fastest-growing industries. Tech and environmental industries took eight of the 10 places.
People and businesses now rely on technology, from video conferencing tech to home security, to tech used to work from home. TVs, toys, books, and other apps all need to be developed, sold, and maintained.
A bad economy can be the best time to buy a franchise business. You are getting in ahead of a pick- up, and this could help you to invest favorably. But it’s crucial that you buy a business that is resilient. It’s also critical that you ensure you are ready to transition to an entrepreneurial life as a business owner.
Before you make any decision, contact New Ground Consulting. Our Executive Career Transition program will ensure you make the right decision for you.