5 Questions to Identify the Best Franchise for You to Buy
A franchise can be a great investment for all stages of the economy. Providing you invest in the right one, stability in business will not be a problem if the economy takes a tumble. Even during the depths of the COVID-19 recession last year, some businesses defied the odds and not only survived but thrived.
If you’re a first-time franchisee, perceived risks of owning a business could make you nervous. You should expect to get cold feet, but your nerves could mean you lose out on a great franchise opportunity.
You can de-risk franchise investment by making sure you have a good understanding of the franchise and its operations. You should ask about different aspects of the business to pick the best franchise for your need.
The first thing that you need to do is to consider how to find the right franchise as an investor – figure out your financial goals and how much money you are willing to invest.
Next, it will be important for you to consider your skills and experience and how they dovetail with the franchise, so that your business will be as successful as possible.
Finally, select a franchise that is stable. What do I mean by this? It’s not going to be ravaged by the ups and downs of the economy. In fact, it may even grow faster during a recession. Yes, there are businesses that achieve this. If there weren’t, the economy would be devoid of any businesses that are more than around 10 years old.
In this article, you’ll learn how to select a franchise for its business stability.
Stick to the two golden rules for finding stable franchise opportunities
You must evaluate franchise opportunities before deciding to buy. You want to find great businesses to buy in a recession, but you also want to make sure they aren’t likely to go bust. Low risk is what we’re after. Our two golden rules are designed to make this happen.
Rule 1: Invest in businesses that have ideally been in business for 50+ years
Invest in a franchise only if it has a long track record. It’s this longevity that proves they know their business and their customers. They will have experienced all economic conditions. They responded, adapted, survived, and thrived.
Take the Meineke franchise as an example. They started life right before the huge recession of the 1970s. But they have got their business model right. They offer auto repair franchises across the country. This business has survived several recessions, the housing crisis, and more. And it continues to grow.
A business that has survived the last 50-odd years is well placed to survive the next 50, don’t you think?
Rule 2: Invest in an industry sector that is resilient
Resilience. One of my go-to words in business. A resilient industry is not cyclical in nature. It has a large and diverse customer base (hey, there are more than 220 million people with a driver’s license in the United States), and those customers have a need for the products or services that the industry provides.
The personal care industry is a great example of this. Most people have a desire to look and feel good, and it can be one of life’s necessities, too. One of my favorite franchises in this space is the Supercuts franchise. They provide a no-appointment service in more than 2,700 salons in North America. They offer a range of grooming services and personal hair care products. The business has a great track record, too – it was founded in the mid-1970s and expanded its number of franchises almost unbroken since.
Investigate top down
When you’re searching for a stable business to invest in as a franchisee, take a top-down approach. Look for a stable industry first, then for the best franchises within it. Industries like healthcare, food, and education have been proven to not only stay afloat during recessions, but also to grow.
Avoid cyclical industries – those that grow rapidly and then suffer slower growth or stagnation. You should also look for industries in which demand is less affected by price rises, and where there is a large pool of demand. If consumers can postpone the purchase of products or services offered, you should give these a miss, too – it will play havoc with your cash flow.
5 Questions to identify stable franchise opportunities
These five questions will help you identify both industries and franchise opportunities that offer great business stability.
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Does it offer a product or service that is hard to provide more cheaply?
When the economy is doing poorly, people are more likely to switch to a cheaper alternative product. If you offer something that cannot be substituted, you’re in a great position to benefit. For example, auto repair shops usually benefit from recessions – the substitute is to buy a new car, and most people can’t afford to do so when money is tight.
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Is there a large and diverse market?
If the industry has a limited market, then it won’t do well in a recession. Thus, industries like food and drink, healthcare, and education do so well in recessions. Everyone needs to eat and take care of their appearance. Children still need to learn, and so do people who have been laid off from work and are now looking to increase their skillset.
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Is their demand inelastic?
In some industries, demand is elastic. What this means is that when the price of the product goes up, people will still buy it because they really want or need it. However, in other industries demand isn’t elastic. When prices rise, it does little to dampen demand – energy and utilities, for example.
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Is the industry capital intensive?
In a short-term slowdown, the end goal is to have recurring and sustainable revenue streams. In an industry that is capital intensive – for example, where huge lines of stock are left on the shelf – money is tied up. It then becomes harder to manage cash flow successfully.
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What is the level of new competition?
An industry with high demand is likely to encourage new competitors to enter the market. This is very much an industry and franchise-specific question to ask. You don’t want to operate in a saturated market, but the fact that there is competition shows that there is the business to support it. What you must do is to ensure you buy a franchise with a great name and reputation, and that offers location protection.
You want to buy a stable franchise? There are opportunities waiting for you
You are not alone in your struggle to find the right franchise opportunity. There are many options, and it can be hard to find a business that is the perfect fit for you. We understand first-time franchisees, your nerves and fears, and your need to buy and operate a stable business.
We have helped many people just like you to make their entrepreneurial dreams a reality. The solution is to first take the franchisee aptitude test, and then book a free consultation with us. Together, we will find the very best franchise opportunities for you.