With thousands of concepts to choose from, finding the right franchise has always been a daunting task. But researching a franchise opportunity now requires contending with a whole new element: the current recession. With companies downsizing, entire industries faltering and consumers’ buying habits changing due to stricter budgets, it’s not business as usual. Finding the right franchise for you will involve age-old methods, including speaking with existing franchisees to validate the concept, working with a franchisee lawyer to evaluate the franchise opportunity, and speaking with franchisors to ensure that it’s a concept you believe in, but it will also require going the extra mile. Take these additional steps to find the right franchise for you in today’s economy:
1. Research the financial health of the company. Times are uncertain and the last thing you want to do is invest in a franchise that’s not financially sound. Pay extra attention to the financial information disclosed in the Franchise Disclosure Document (FDD), a document that the franchisor is mandated by the Federal Trade Commission to provide, and substantiate the information by speaking with existing franchisees. Libby Mitchell decided to purchase a Fetch! Pet Care franchise but only after discussing financials with franchisees already in the system. Her diligence helped her avoid pitfalls, as some of the other franchise companies she looked at actually closed down during her search.
2. Find a concept that’s recession resistant. It may be impossible to find a company that’s recession proof, but it is possible to get an idea of which industries have more long-term potential than others. Franchises focused on senior care and senior services provide a basic life necessity that consumers can’t easily eliminate. Child enrichment and education franchises will likewise continue going strong as children’s needs are not easily sacrificed. Finding a recession resistant business was one of Margot Bartsch’s main criteria when seeking the assistance of a business advisory service. Her search ultimately led her to Tutor Doctor, a franchise specializing in in-home tutoring. “People may choose to forgo a vacation or new things,” she says, “but if their child needs help they will put that need first.”
3. Take into consideration factors like overhead costs and startup time. In case you haven’t heard by now, getting access to capital is not as easy as it used to be, so don’t count on getting money from the bank. Mitchell chose Fetch! Pet Care over other franchises in the pet industry precisely because she could keep overhead costs minimal by working out of a small office or even her home. And make sure to ask existing franchisees how long their startup took to ensure that you have sufficient resources to get you through the initial startup period.
4. Pay attention to how diligent the franchisor is in making sure that you are a good fit. Times are tough, and franchisors may be anxious to sell franchises; however, remember that by being part of a franchise system, your success is partly dependent on others within the system. If a franchisor is too eager to sell without taking the necessary steps to qualify you as a franchisee, that is a good sign not to invest.
5. Avoid get-rich-quick schemes by checking for legitimacy. When Joe Lee’s job was downsized, he thought about opening his own accounting or bookkeeping company and started researching online. When an ad popped up asking if he was interested in buying a franchise, he was receptive to finding out more, but he was also cautious about scams. “In this economy, we were concerned that disreputable companies might advertise on the Internet, so we wanted to be certain we were not being duped,” says Lee. After answering general questions about his passion and skill set, he was led to Bookkeeping Express. It was just the type of business he was looking for, but before doing anything, he took extra care to verify that the company was legitimate. He did an online investigation of the company, contacted his local chamber of commerce, and brought the franchise agreement to the Small Business Development Center at his local university for evaluation. Scams proliferate during tough times as crooks prey on desperate people, so it’s now more important than ever to do your homework.
6. Take a look at how the franchisors are responding to the economic downturn. Are they encouraging franchisees to offer discounts on products and services to maintain customer accounts? This can be a good approach, but take it one step further by talking to existing franchisees about whether the franchisor is taking any other actions to help franchisees, advises Michael Seid, founder and managing director of Michael H. Seid & Associates LLC, a domestic and international franchise advisory firm. “Some franchisors are bringing to market new products designed to be sold at a lowered cost with a lower cost of goods,” he says. “I am excited by those types of creative management and brand techniques by the franchise systems that use them.”
7. Don’t choose a franchise by the special incentives alone. In order to attract investors, franchise companies are offering a variety of incentives such as slashed franchise fees and waived royalty payments for the first few months. Don’t let these offers, however enticing they may be, distract you. If you have determined that the franchise is stable and the concept strong, then and only then consider the incentive, says Seid. “We live in interesting times, and several strong, well-qualified franchisors are offering these [incentives, which] does create an opportunity that may not come along for a while.”
Sara Wilson is a freelance writer who specializes in issues related to small businesses. Contact her at [email protected]