Five Questions to Ask When Buying a Franchise in a Tough Economy

Karen Axelton
Wed, 10 Jun 2009 00:00:00 +0000

Today’s tough economy doesn’t have to put a damper on your dreams of buying a franchise opportunity. True, you do need to do your due diligence, and you may need to work harder to get the necessary financing. But in some ways, the recession has created opportunities that didn’t exist before. The key is knowing how to take advantage of them. Here are five factors to consider before you buy a franchise today:

1. Can you get a good location? In a retail or restaurant franchise, location has always been a key consideration. Now, with consumers choosier and less likely to buy on impulse, a good location -- one that attracts traffic, has adequate parking and suits your space and build-out needs -- is more important than ever. Look for a franchisor that helps you with site selection, and make sure you and your franchisor thoroughly assess all the pros and cons of a potential site. The good news is that as more companies go out of business, more desirable locations are becoming available. And landlords who are left with fewer options for tenants are increasingly willing to make deals. Now’s the time to try to negotiate everything -- whether it’s a shorter lease, lower rent, or additional services or perks thrown into the lease. As a franchisee, you have the leverage of a franchise’s brand name on your side when negotiating with a landlord. And due to today’s tough economy, some franchisors are offering help negotiating your lease.

2. Do the market conditions support your success? Do thorough market research into the area where you’re considering locating. You may be buying into a fantastic franchise system, but that won’t matter if the concept isn’t right for your local market. Investigate the demographics of your market, the income level, unemployment rate, and other key factors to get a picture of who lives in the area and what their spending power is. You can find lots of information at the Census Bureau's site (www.census.gov). Also talk to local sources, such as the Chamber of Commerce and local business networking groups, and read local newspapers and business publications. By keeping your finger on the pulse of the community, you’ll know where the opportunities lie…and where they don’t.

3. Will it be easy to hire? Employees are key to the success of a franchise business, but hiring workers for a small start-up company is often a challenge. The silver lining of having so many Americans out of work is that it’s easier than ever to find qualified employees for your new franchise location. In fact, the challenge may be not so much finding candidates as keeping up with all the job applications you’ll get. You will have the luxury of being choosy.

4. Is there a demand for your product or service? These days, consumers are still spending -- but in general, they’re spending on necessities, not luxuries. If the franchise you’re considering offers something consumers need no matter what the economy -- such as tax preparation, plumbing, or IT services -- it stands a better chance of success than if what you’re selling is more of a discretionary purchase. Again, here’s where you need to know your specific market -- both the geographic region and the target customer -- and figure out what those customers consider necessities or luxuries, as this will vary depending on the age, income level, sex, and other factors of your target market.

5. Can you get a good deal from the franchisor? As tight credit markets have slowed franchise sales, many franchise companies have begun offering additional assistance with financing, discounting fees, or offering other financial incentives. Be aware that you must have a good credit rating and be in good personal financial shape to take advantage of special financing offers.

Depending on the answers to these five questions, you just may find that despite poor economic conditions, now is the ideal time to buy a franchise.

Karen Axelton is Chief Content Officer at GrowBiz Media (www.growbizmedia.com), a content and consulting company that helps entrepreneurs start and grow their businesses.