After successfully recovering from a major recession just over a decade ago, the threat of another economic downturn looms over the business community like a dark cloud.
Many people are concerned about the impact of economic uncertainty on franchising. As a franchise consultant, I am frequently asked this question, and my response surprises people.
In my opinion, a recession has no effect on franchising. This is due to the fact that franchising is not an industry. It is a business strategy. A recession has an impact on the industry in which the business operates.
Certain franchise industries are less susceptible to economic downturns than others.
A downturn in the economy can have a positive or negative impact on retail franchises. Storefront franchises are frequently reliant on in-store traffic and customer sales. People may reduce their spending on things like dining out, clothing, and travel when times are tough.
As a result, retailers in these industries may suffer. If, on the other hand, your storefront business is check-cashing or dollar stores, you may fare better during an economic downturn.
Home-service franchises, on average, are more neutral, which means that no matter what happens in the economy, franchises will continue to operate. The demand for these services is greater and less reliant on discretionary spending.
It's crucial to remember that some industries are countercyclical. This means that when the economy slows, their business grows. Outplacement services, credit services, or inexpensive haircuts are a few examples.
When the economy slows down, I frequently speak with people who believe franchise financing is unavailable. This is untrue. In my experience, regardless of the economy, financing is very similar.
Franchises can be opened with success in a strong, weak, or average economy. All that matters is that you are prepared to put in the effort, thoughtful and balanced in setting your expectations, and careful about the industry you are considering.
If you’d like to talk about franchises in the current economic conditions, please schedule a brief call with me.