Picking a Winning Franchise in a Recession (Business Franchise story)

Picking a Winning Franchise in a Recession

By Andrew Cutler, Franchise and Sales Director of Card Connection

Reducing the risk, when buying a franchise in a recession, is critical. There are a number of factors to check to ensure your potential investment will be profitable in difficult financial times.  Here are my five top tips on picking a winner:

1) Do your homework. Thorough research into industry sectors, franchisor background, product popularity and existing franchisees is the only way to ensure you invest in a winning franchise.  Through the internet, rich sources of information are readily available so find out all there is to know about various franchise options.  Look at which sectors are proving more profitable and which products are remaining popular to ensure you are well prepared before purchasing any business.

2) Choose a BFA Member.  It is recommended that you choose a franchisor that is member of the British Franchise Association (BFA) as members are required to adhere to a code of ethics which protects you as a franchisee.

3) Select an established Franchise.  Franchisors that have been around for a while will be experienced in helping franchisees manage their businesses in more challenging economic times.   You may even be able to find out how the franchise did in previous downturns.  Those that survived are most likely to be in a good position to work through difficult times – they will have the advantage of hindsight and lessons learned.

4) Check the Accounts.  Evaluate the profit and loss accounts of the franchisee you are buying the business from, for at least the past three years.   This will provide key information about how much the franchisee has earned in the past – in the good times - and how the business has faired in the recession so far.   If you are buying a virgin territory, ask for copies of the accounts of established similar sized franchises and use an independent accountant to verify that there are no hidden problems.  

However much you love the idea of buying a particular franchise, at the end of the day this will be your income so be sure that the sums add up.  Spend some time with your accountant to evaluate honestly if the business is likely to bring in enough money to support you and your family in the current market conditions.  Keep in mind that as well as the challenging financial situation, you will have a steep learning curve, possible borrowing costs, initial investment in equipment or stock to contend with.

5) Talk openly:  Be sure to have an upfront and open discussion about the financial climate with your chosen franchisor.  Find out why the franchise is for sale.  Enquire about plans to mitigate the effects of the global financial slowdown within the business.  Ask for their advice on how you will need to tackle the challenges that the current market situation presents and particularly what support you should be expecting.  Find out how other existing franchisees are faring and what strategies they are implementing to keep their businesses financially healthy.  If they are burying their heads in the sand and don’t have any plans, then beware!  

Even in a recession there are still plenty of thriving businesses out there and many good opportunities available.  However, only careful research will allow you to select a suitable franchise that will survive and even thrive in the most challenging economic times.