As I’ve mentioned before, lots of franchise companies have reacted to the tough economy by offering special financing deals for franchisees. These have ranged from forgiving the franchise fee to deferring or waiving royalty payments, giving the franchisee additional money for marketing or store improvements, and more.
That’s good news for people looking to buy a franchise in a recession — but if these types of incentives are the primary influence on your choice of franchise, you need to be cautious. Why? Because these deals won’t last forever. For example, The Wall Street Journal recently reported that Papa John’s will most likely cut back on the financial assistance it’s offering to franchisees. Speaking on the company’s most recent earnings call, Papa John’s founder and Chief Executive John Schnatter noted that since cheese prices have declined significantly (and franchisees are thus making more profits), “it would be fair to assume that [future assistance] would be quite a bit less.”
Papa John’s most likely won’t be the only pizza company making this type of adjustment. And the pizza industry won’t be the only one reducing its financial aid. Since temporary financial programs are just that — temporary — you shouldn’t let them be the deciding factor in which franchise you buy.
If you can’t afford to launch a franchise location without the help of “financial aid,” you probably shouldn’t be getting into that franchise — especially not in today’s lending climate. Instead, consider a lower-cost alternative. If you’re in love with a certain industry, like food service, look for a food-service franchise that’s run from a kiosk or mobile cart instead of a store. You get the idea
Don’t get me wrong — I’m not “dissing” the franchisors offering financial assistance. Far from it. But substantial market research suggests that consumers’ financial attitudes may remain cautious long after the recession ends. That’s why the smartest franchisors are going above and beyond short-term assistance by developing new product or service lines that fit with the needs of cost-conscious consumers now and in the future. These may be items that cost less, but have higher profit margins; or services that are priced lower, but used more frequently. This is a long-term strategy — and when it comes to investing in a franchise, it’s crucial to think long-term.