What to Look for in a Franchise During Times of Economic Uncertainty

Since the EU referendum in June 2016, there have been significant political changes taking place in the UK. These can create uncertainty and apprehension for all business owners, including franchisees. With Britain’s imminent exit from the EU, is now a good time to consider buying a franchise? In today’s article, we consider the current state of economic uncertainty in the UK and why franchising is ‘recession-proof’, and then discuss what to look for in a franchise.

In August this year, the number of individuals in work had decreased by the largest margin in four years (The Guardian), as companies are hesitant to hire new staff. And the fact that the pound is weaker means that imports – and, therefore, consumer goods – are more expensive. Bearing this in mind, it’s no wonder entrepreneurs are questioning whether this is the right time to buy a franchise.

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The Bank of England predicted that inflation would drop to 1.56 percent from 2.1 percent by the end of this year, but as a result of recent events, the governor has changed these estimates and now proposes it could surge to 5.5 percent. Due to the UK’s economy being relatively unstable, there has been a lack of investment in the UK and many companies are investing in other countries or are waiting until there is some more clarity in our economic situation.

Why is franchising considered to be a ‘recession-proof’ job opportunity?

By ‘recession-proof’, we mean a franchise/sector/industry that is economically resilient to the negative effects of a recession. For a franchise opportunity to be recession-proof, it should provide something we need rather than want. When we’re watching what we spend more on and trying to stick to a budget, we’re more likely to cut back on non-essential costs where we can. Therefore, three recession-proof franchise ideas include hair salons, automotive businesses and healthcare businesses.

>> Read more:

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• When to consider starting your own business
• Basic guide to franchising
• Conquer your fears and start a franchise
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Although there are certain sectors of franchising that are considered more recession-proof than others, the industry as a whole is believed to have weathered the most turbulent of economic storms. The British Franchise Association and NatWest 2018 Franchise Survey confirmed that, of the 48,600 franchise outlets in the UK, around 97 percent are profitable. And with only one percent of franchised businesses closing their doors due to commercial failure, it’s easy to see why the franchise industry is an excellent choice during times of economic uncertainty.

But, as with any area of business, there are good and bad franchise investment opportunities regardless of the economic climate. However, in tough times, it’s even more important that you look out for the key factors that contribute towards making the most lucrative franchises.

Top 5 things a potential franchisee should look for in a franchise

There are many benefits of buying a franchise rather than starting an independent business from scratch.

Here, we explore five of the top things to look for in a franchise during times of economic uncertainty.

1. Territory

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When you become a franchisee, you essentially become an independent business owner that operates under a licence that means you have to follow standards set out by the franchisor. You will need to make sure that you meet the brand standards and requirements outlined in the operations manuals and other franchise documents. It’s in your best interest to work with the franchisor to meet these standards to make sure you are maximising the business’ potential.

When you sign the franchise agreement, you will be given the right to operate in a defined territory, which is usually a specific geographic area. This is so other franchisees can’t open a franchise within a certain distance from your location.

Find out whether your territory is exclusive or non-exclusive. If it’s the latter, other franchisees can operate in your region.

By controlling the amount of competition in the area, these territories give franchisees a fairer chance at becoming profitable. This leads us on to our next factor:

2. Profitability

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There are lots of reasons why budding entrepreneurs choose to become franchisees, but making a profit is probably one of them. If you’re looking to invest in a well-established franchise, there should be plenty of financial information for you to review.

To understand how sales, margin and profits are performing across the franchise network, ask the franchisor if you can speak to active franchisees. Being able to discuss financial expectations versus reality with existing franchisees will give you a real insight into whether an opportunity is one of the most profitable franchises to invest in or not.

If you’re interested in a newer franchise that has less financial information for you to evaluate, ask to see the results of the pilot franchise. To prove their business concept, many franchisors run a pilot franchise for one to two years. Being able to assess how the pilot performed should give you confidence that you can also make a success as a franchisee.

3. Quality training programme

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A franchise should provide you with training that adequately prepares you to operate your new business. The type of training you receive should be relevant to the job you’ll be undertaking but will also include the skills you need to run your franchise effectively, efficiently and successfully.

4. Marketing

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As well as offer a recognisable brand, a good franchise should carry out nationwide marketing activity on your behalf. It's likely that you'll have to contribute towards marketing through the payment of a regular fee, but this should give you marketing power above and beyond what you could achieve alone.

Of course, you’ll also need to complement the franchisor’s nationwide marketing with local promotional activity. However, the franchise should provide you with the tools, systems and training you need so that you can acquire customers cost-effectively. You then have the job of retaining your customer base through consistency and the quality of the products and services you offer.

When considering what an established franchise can offer you in terms of marketing, you might want to ask the franchisor the following questions:

1. What will I get in return for the marketing fee?

2. Please can I see past campaigns with figures of how they performed?

3. How much of the advertising budget will be used market my business locally and nationwide?

4. Ongoing support

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The most profitable franchises don’t stop providing you with training and support once your business is up and running. Having access to ongoing and in-depth support can make a real difference to how successful you are as a franchisee. Whether support is offered through webinars, conferences, training courses or on-site visits, the important thing is that there is continued focus on helping you make your business more profitable.

When you’re reading through a franchise agreement, as well as looking out for the support you get with site selection and development, initial training, marketing and advertising, you’ll also want to see whether a field support consultant is provided.

A field support consultant is someone who helps improve the overall performance of your business and makes sure that you are operating in accordance with brand standards. It isn’t their role to supervise you or your staff, but they are the main source of guidance.

6. Lower overheads

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If you do have concerns about starting a franchise with so much uncertainty surrounding Brexit, you could choose to limit your risks by considering home-based franchises. Because expensive business premises and equipment don’t need to be funded, home-based franchises can achieve profitability much more quickly than their bricks and mortar counterparts.

Generally, home-based franchises also have lower franchise fees, so are perfect for entrepreneurs who don't want to make a considerable investment to get their own business up and running.

Using franchising to start your own business during economic uncertainty

Despite the political and economic landscape, franchises offer a considerably less risky route to business ownership in comparison to independent start-ups. However, pretty much no business in the UK is completely immune to the effects of Brexit. While leaving the UK can present more business opportunities, UK businesses are bound to be affected both subtly and in more drastic ways.

To increase your chances of being a successful franchisee, just make sure that you do your homework to find the right franchise for you and reflect on whether you have the skills needed to ride out the turbulent times. Follow our five tips about what to look for in a franchise that are important not only in times of economic uncertainty, but also in more stable economic climates.

Here at Point Franchise, we have over 200 franchise opportunities from a wide range of sectors. You can use our geo-localised search engine to find franchises in certain areas, and you can also filter opportunities based on the investment level.

One of the recession-proof sectors mentioned earlier was hair salon franchises, and the one currently on our books looking to expand its UK franchise network is Rush Hair.