Franchising may be a safe bet in the current economic climate but there are still plenty of things to consider before banking on easy success. Here are some ways to recession-proof your franchise for success.
Recently I’ve read a plethora of articles promoting the virtues of franchising in a recessed and perhaps worrying economy. The cut and thrust is that franchising is a more viable and secure way to earn a living, should anyone lose their job or choose to make a change for the better. However, the idea that someone can buy a franchise and secure their future without being a smart business operator is false hope at best. Franchises, like any businesses, have the potential to suffer from the economy but there is strong hope in this sector and most reports to date show franchises weathering the storm well.
The fundamental and perhaps more truthful consideration for anyone buying a franchise in today’s economy is that most franchises in Australia are quite mature, have already suffered the slings and arrows of previous economic downturns and have lived to see another day. In general, they have tweaked and honed their franchise systems to bounce through the turmoil and emerge through the other side in relatively good shape. And therein lies the attraction.
Franchising history
The introduction of franchising in Australia, like in so many other countries, started largely with the major multinational food chains landing on our shores: Sizzler, KFC, Hog’s Breath Cafe, McDonald’s, Hungry Jacks and others. It’s a natural progression for any major food operator; basically, just stand back and look at the foods people are eating, do we have any products which match them, how fragmented is the market? Is it an island of small business owners delivering lacklustre product offerings with potential for the taking and, if so, what opportunities exist for us? Enter the North American fast food giants with their colourful neon lights dotting the landscape today. However, it’s not all about food and that’s where franchising does provide a litany of choice for those who may be made redundant in their jobs and want something other than food. The franchised service industry also has a strong and mature presence in Australia.
In essence, is it therefore smarter to buy an established brand with a proven track record and be spoiled for choice, like potential franchisees are, rather than embark on a business venture that may fail and cost you more money that may take a lifetime to repay the debt? The answer is obviously “yes” and that’s what makes franchising a strong choice. But let’s look at this a bit more closely. Franchising has always been regarded as an exponential growth industry and the recent survey Franchise Australia 2008 found an estimated 1,000 franchise systems had experienced 15 percent growth from 2006 to 2007. The survey revealed while franchising continues to experience strong, stable growth with unique systems and franchisor support, franchise owners need to reassess their business development plans and adapt to new market pressures.
Confidence not good
Asked to respond to a range of issues that may potentially impact on their businesses, franchisees said interest rates were critical to their sustainability plus the availability of skilled staff and a strong economy. Unfortunately, franchisees shared a mutual lack of confidence in the national economy performing well over the next 12 months. However, it isn’t the first time this outlook has arisen and it won’t be the last. Most mature franchisors have been around long enough to recall the economic crashes of 1987, 1992 and the Asian Tigers crash of the late 90s. Franchising has a history of weathering economic crises better than most industries because it is generally perceived as safer than establishing a business from scratch, plus the support you will have on tap from franchisors. In the current economic climate it’s a safer and smarter option.
The time and effort saved on having to establish a business could in some cases be worth two-to-three times the franchise value. Think about these things: once you decide to start a business, you need to undertake some research. Is there a demand for your product or service? Is there a target audience where you want to open the business? You will need to create a brand name, logo, a product identity and positioning line then educate people about your business, what it does and costs, your experience in the business and related items. This alone could take months, perhaps years in some instances for you to build a brand profile, secure a customer base and generate a sustainable income stream. It goes without saying that a successful franchise will have already done the work for you.
Don’t be complacent
Despite growth and relative positivity in the franchising sector there isn’t room for complacency and to survive franchisees must implement a number of strategies to help recession-proof their businesses. Cashflow modules should be developed and checked daily and overall expenses should be reviewed and curtailed where possible. Reel in debt and assess your outgoing costs and financial status to work out what can be consolidated. Adjusting spend rather than reducing it is a key to success and one of the mistakes businesses often make is reducing staff costs. If your team is performing well, this can prove a disincentive as franchising is about service and maintaining this is crucial to long-term success.
Another cost franchisees may contemplate cutting is marketing, but don’t! The same principles apply and driving brand awareness is imperative to survival, particularly in tough times. Franchisees should get more innovative with marketing techniques and strategies, remaining vigilant in their markets and remembering there may be opportunities to pick up more business from weaker competitors who may close their doors, thinking it’s all too hard.
Grab an opportunity
Franchisees must focus on being counter-cyclical, breaking market inertia and working against tendencies in the economy, remain positive and buck trends and general forecasts. It’s only doom and gloom if you believe it is. More multi-millionaires have emerged from grabbing opportunities in a down market than when times are good. In short, franchising is stronger than ever and remains a great business option for those looking to “buy their future” and control their destiny. However, as mentioned earlier, it is a business and the more you do for yourself to ensure your success, with the support of your franchiser, the more rewarding it will be for all parties.
—John O’Brien is CEO of the Poolwerx franchise and former chairman of the Franchise Council of Australia
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