A "Recession Proof" Franchise?
I often hear some franchise concepts pitched as recession proof…
I often hear clients tell me certain franchise concepts are recession proof because they offer a
product or service that is a consumer staple… a necessity
This type of logic is flawed because it sets false expectations. It can get you in trouble fast.
The idea that a concept is pitched as recession proof is disingenuous and false. For those who
have owned or own their own business, they know what I am talking about… and if you’re
someone who is thinking about dipping your toes in the vast pool of entrepreneurship PLEASE
keep that in mind… Most mistakes, come from people who had false expectations and/or failed
to recognize what’s important in the early stages of their due diligence. Just because a business
or franchise offers a consumer staple does not mean the investment comes without RISK.
Keep in mind, there are franchise concepts that offer product/services that will hold up better in a
down economy. Some examples include select health/senior care, food based concepts,
restoration and hair care to name a few. These businesses have relatively stable demand, as their
services are required...
If your basement floods… you need to fix it…
If you have an elderly loved one… they need to be cared for…
If you’re hungry… you need to eat… etc…
Just because a business sells a consumer staple that has stable demand doesn’t mean there’s no
risk. Here are a couple of factors to consider with your research.
1. Competition – Other businesses can take your business. My personal feeling is that
competition is a good thing as it means there is a market for your product or service. It’s
important to make sure, however, your market is not saturated with competitors.
2. Business Model – Some franchise concepts have better business models. Their systems are
proven, they have effective marketing and management tools to drive customer flow and provide
your services. Senior care may be in demand, but if another franchise has a better brand and
system there is a risk.
3. Undercapitalization – You need to have enough money to operate a business. This includes
both the funds to get started, PLUS, working capital to fund both business and personal expenses
as you’re developing your customer base. A lack of capital is a recipe for disaster. It’s always a
good idea to speak with your CPA and financial planner. They can help you with your research
and determine the financial resources needed to be successful.
Owning a franchise or an independent business can be a fun and rewarding experience. It
presents an opportunity to take control of your own destiny, create your ideal lifestyle, financial
freedom and build wealth. There are a number of factors to consider during your research. Take
caution when you begin to review specific franchise concepts. Be wary when an opportunity is
pitched as “recession proof”. While the business might be in an industry that fares well in a down
economy, that does not mean the investment is without risk. Understand the competitive
landscape. Analyze and learn the business model in detail. Learn about both national and local
competition, and make sure you have enough capital to successfully fund the business.