For business owners, franchisors and franchisees, the past two and a half years have been hit one after the other – a global pandemic and long periods of lockdown and restrictions, the impact of the invasion of Ukraine, a crisis in the cost of living and now here in the UK a gloomy one warning from the Bank of England yesterday that we are in a recession. The UK economy is expected to contract in the last three months of this year and to continue to contract until the end of 2023.
With such grim news on the horizon, many franchisors will worry that franchise questions will dry up and prospects will be unwilling to invest both financially and emotionally in a new business venture during a time of uncertainty. The good news, however, is that franchising as a business model has proven to be quite resilient in times of past economic crisis – the caveat, of course, is that franchising spans a wide range of industries and some sectors will be much more heavily impacted by a financial downturn and decline in income. optional consumer spending than others.
So what are the factors that can give franchisors some hope as we look ahead to the next 12 months and beyond?
More potential franchisees
A shrinking economy inevitably leads to restructuring, layoffs and therefore an increased number of individuals seeking a new direction and a change of career. That’s great news for franchise brands that can provide the opportunity to take your destiny into your own hands and become a business owner with the security of being part of an established brand.
Proven business model
For anyone looking to launch a new business idea, it is inevitably more challenging to access finance during an economic downturn. However, lenders are more likely to look more favorably at financing applications for a franchise that comes with a track record of success, as opposed to an independent business that is considered higher risk. And of course, franchisees already benefit from an established business model that works – all the expensive and time-consuming mistakes and detours have already been made so they can get right on the path to success.
The power of a network
In times of stress and uncertainty, the support a franchisee receives from the franchisor and the wider franchisee network becomes invaluable and is one of the reasons why franchisees generally have a higher success rate than independently run businesses, regardless of trading conditions. At the height of the pandemic and while negotiating many difficult restrictions, within my own industry of children’s activities we saw many independent entrepreneurs struggling for help and not knowing where to go. As we head into this next stormy period, franchise brands can not only provide reassurance, support and assistance backed by experience, but can also capitalize on their strength in numbers by working together to reduce costs, negotiate more favorable trading terms and increase impact with advertising. Established franchises will also have endured different trading conditions during their lifetime and will have the ability and know-how to respond quickly to changing customer spending habits, giving their franchisees a likely advantage over their competitors in the market.
In times of uncertainty, a franchise can provide a low-risk route to corporate ownership, with the support of an experienced network and brand and a proven business model. And while no company can be said to be “recession-proof,” looking at the time ahead, there are plenty of reasons to be optimistic that a well-run franchise brand can weather the storm of the coming recession.