Franchising in a Recession

If you’ve been watching the news lately, you’ve probably noticed a worrisome trend: everyone is talking about the possibility of a recession and/or a bear market. Outlets across the spectrum – from?The New York Times ?and?Wall Street Journal ?to?CNN ?and?FOX News ?– have all recently run stories on the subject. If these stories make you nervous, you’re certainly not alone. But we’re here to encourage, not frighten. You can use this situation to make your franchise dream easier, not harder. Franchising in a recession is not only doable, sometimes it’s downright smart.

What’s a Recession?

First, let’s define some terms. The?National Bureau of Economic Research (NBER) ?is usually considered the most reliable source of dates for U.S. recessions. The NBER defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” Many experts consider the economy to be in a recession once it has been declining for at least two quarters.

Recessions are a normal part of economic cycles.?They have many causes ?and tend to vary in length and severity. Before World War II, the average recession lasted almost two years. Since World War II, the average recession has lasted for 11 months. The U.S. has had four recessions over the last 30 years: the Gulf War Recession of 1990-91, the Dot Com Recession of 2001, the Great Recession of 2007-2009, and the Covid-19 Recession of 2020.

What’s a Bear Market?

For most economists,?a bear market happens ?when a broad-based stock index falls more than 20% over a period of two months or more. The consensus is that we are currently in a bear market because the S&P 500 stock index, which includes most household-name U.S. companies, has fallen by about 24% since January. A recession often follows a bear market, but not always. The U.S. has had 12 bear markets since World War II, but 9 recessions.

The Benefits of Franchising in a Recession

We do have some candidates who are second-guessing their plans because they’re concerned about franchising in a recession. As the reasoning goes, consumers tend to make less money and spend less during recessions. So if you start a new business now, you’re just setting yourself up for failure – right?

Well, no.

First of all,?plenty of franchises are recession-resistant . They can be that way inherently, because they offer essential services that people continue to spend on during economic downturns. Or they can be that way because you, as a savvy franchisee, are smart about how you structure your business. For instance, if you can afford the up-front cost, you can?open multiple locations ?to take advantage of economies of scale.

Normally, we tell candidates that?home-based businesses ?are the smartest choice for franchising during a recession. They have lower startup costs and lower overhead, so they preserve cash – always a good choice during a downturn.

On the other hand, a?brick-and-mortar franchise ?can be a good choice during a recession or bull market. Commercial property owners often struggle to hold onto tenants during downturns, and fewer businesses buy property during those times. That means discounted real estate prices for business owners who are in a position to move forward.

Challenges in commercial real estate often ripple outward, as well. As a business owner, you might be able to get a discount not just on your rent, but also on property-related services such as construction, cleaning, and security. If you start pursuing a brick-and-mortar option franchise option now, and the current recession predictions come true,?the timeline ?will be on your side. You’ll be preparing to rent or buy your location right as space costs come down.

The Value of Experience

For our candidates, yet another factor often comes into play. At The Empowered Franchisee, we work primarily with seasoned executives – people who have seen multiple recessions and bear markets come and go. If you’ve successfully led a company or a division through a downturn, guess what? You can do the same with your own business.

Franchising in a recession doesn’t have to be intimidating or scary. You’ve been there, and you know?how to find opportunity in a challenging situation . Plus, franchising gives you the freedom to lean fully into your own expertise. You?make your own decisions ?about staying the course, pivoting, or doing whatever else you need to do to succeed.

Don’t let the talk of recessions and bear markets scare you. This is your time. With our help, you can choose just the right recession-resistant franchise and position yourself to succeed.?Book a call with Dave to learn more about how our process works. It just takes 20 minutes!