Should You Buy a Franchise in a Down Economy?

Most Americans are very familiar with franchises; after all, most of us interact with one on a weekly, if not daily, basis. Whether it's for coffee, tax advice, child care, or an oil change, Americans will spend about $835 billion this year in the country's 855,000 establishments, according to a report from PricewaterhouseCoopers.

And although the economy's a real mess right now, it's actually a good time to jump on the franchise bandwagon. Why? Business startups tend to thrive in recessions since it's so hard for people to find jobs. And, for many, franchising represents a safer choice than building a business from scratch. After all, the failure rate for a franchised business is lower than the overall business failure rate, and the franchisor is offering (and training you for) a system that's presumably been battle-tested.

That's not to say it's easy to buy a franchise. It's not, which is why thoughtful, informed ranking systems like the new AllBusiness AllStar Franchises can be helpful when you're ready to start researching the best opportunities out there.

Everything Is Negotiable

The recession has made it more difficult for prospective franchisees to buy a franchise because it's harder to get financing. To help new franchisees get past this hurdle, some franchisors are coming up with creative solutions, like waiving the first few months of royalty payments or discounting the franchise fee. Everything is negotiable these days, so when you're talking to the franchisor, ask for concessions and flexibility.

Franchise trends tend to slightly trail the overall market, since most franchisors have to start their own business, expand it, and then develop a system that translates to different geographical markets. That said, many of the fast-growth franchise concepts today mimic the businesses that are still doing well despite the tough economy.

Booming Baby Boomer Market

Senior care and services are not only going strong now, but considering that the leading edge of America's 77 million baby boomers turn 63 this year while the youngest turn 45, this is an industry with a long life cycle. At the other end of the age spectrum, franchises serving kids through education and enrichment programs are also fairly recession-proof as parents of any generation will continue to put their children's needs ahead of their own.

One group of consumers who need more help than usual these days is, ironically, business owners. Hundreds of thousands of Americans are expected to start their own businesses in 2009 and many need assistance with setting goals and executing strategies. They're hiring business coaches to help them, making this a thriving franchise category. Coaches are not just for startups; their services are in demand by millions of existing small business owners looking for an edge in today's ultracompetitive market.

Old and New Food Favorites

And then there's food. Whether it's to celebrate good times or escape from stressful ones, Americans love to eat. Half the companies in the AllBusiness AllStars Top 10 are food franchises. Not only are there the instantly recognizable food stalwarts like Subway, Dunkin' Donuts, and Denny's (winners #1, #2, and #10 respectively), but relatively new food concepts like Buffalo Wild Wings Grill and Bar (#7) and Smoothie King (#9) also cracked the Top 10.

And while there are some very familiar names that dominate certain food categories, there are some relatively new competitors lapping at their heels. Take hamburgers for example. You might think with a franchise and brand as well recognized and dominant as McDonalds that it would be crazy to start a new burger chain and even crazier to buy a franchise in that chain. Well, you'd be wrong. Five Guys Burgers and Fries is rapidly becoming an American favorite, and they've only been franchising since 2002. Five Guys ranks #40 overall and #12 in growth in our AllStar ranking.

Being #1 doesn't mean a company can rest on its laurels. Though Subway is the largest American franchise, they are far from alone in the sandwiches category. Jimmy John's Gourmet Sandwich Shops, founded by a true entrepreneur, is #2 in the sandwich category, #17 overall, and ranks #16 in growth on our list.

Is Franchising Right for You?

Franchising is not for everyone, though. If you're a "march to the beat of your own drum" type, you're likely to rebel against the rules your franchisor imposes. On the other hand, if you've recently been laid off, have no experience running your own business, or don't mind being part of someone else's system, franchising might be right up your alley.

Obviously, starting a business is not without risks, but buying a franchise helps to mitigate some of those risks. If you think franchising might be for you, there's no better place to start your search than here among the AllBusiness AllStars.