Many aspiring business owners believe it is counterintuitive to launch a new venture during a time of economic instability. However, opportunities exist despite the effects of inflation and rising interest rates.
Inflation in the U.S. hit a 40-year high this spring, causing concern over the rising costs of doing business. But many franchises offer consistent cash returns and relatively low volatility. The question is, “how do you find the right franchise?”
Consider these factors when assessing franchise opportunities
Economic uncertainty creates strife for consumers and businesses but can also reduce competition and create marketplace gaps that need to be filled. If you are considering becoming a franchisee, research is crucial for finding the right fit. Here are three vital elements to consider when assessing franchises:
- Differentiation: Does the franchise offer identical or similar products or services as other businesses in your preferred area? Starting a business that distinguishes itself from others during a time of questionable economic security may have a better chance of thriving.
- Innovation: The franchisor plays a crucial role in your success. Choosing a well-known brand that constantly updates policies and procedures to improve its brand and deal with economic and other challenges can help you hit the ground running.
- Resiliency: Along with innovation, brands that adapt to changes beyond their control are among those that typically survive economic challenges in better shape than others. These franchises are focused on giving you and other franchisees the tools, guidance and training necessary to navigate difficult times.
A crucial part of evaluating franchises is comparing unit economics, measuring profits and how well franchisors manage costs. Franchises that do not have strong unit economics may not offer a strong return on your investment. It is critical to inquire with other franchisees in the system what are both their revenues and their bottom line so you can verify the claims of the franchisor and have a better sense of what you can expect as the return on your investment.
A strong defense is often the best offense
Franchising provides a successful and established business model, and many franchises have survived or even thrived during previous recessions and times of uncertainty. But due diligence is essential to protect your investment and your economic future well-being.
Doing your own research is crucial, so you understand the challenges that lie ahead. But franchising comes with complex rules and regulations, requiring experienced legal guidance. Lawyers focusing their practice on franchise law know how to spot red flags and can also help you assess opportunities for success.