Saturday, September 3, 2011

Buying a Franchise to Secure a Job In a Recession Could Be a Mistake

In times of recession when people cannot find a job, often they get stressed out, and they look towards franchising. As a former franchisor, I did note that we had increased franchise inquiries during times of recession when people could not find work. I always thought this was problematic, because even though we had a great business model which did actually do okay during a recession, our franchise offerings were not exactly recession proof. Perhaps you could call them recession resistant, but that's about it.

What I'm saying to you is this; it always seemed to me that it was a mistake for franchise buyers to try to buy franchises in lieu of finding a decent job with a steady paycheck during a recession. However, I guess when a franchise buyer is at the end of their rope, cannot get employment in corporate America, the concept and idea is intriguing. Still, I believe buying a franchise to secure a job in a recession could be a horrible mistake for many people, and if you have a few minutes I would like to explain.

You see, during a recession it's harder to make money in a small business, the consumers are not spending, and therefore the franchisor's business model will not perform at optimum. Whereas it is true that you could find a location to lease at a lower rate, hire a contractor for tenant improvement at a lower price, and find some really talented employees that you may not be able to find otherwise, there is that problem with challenges of cash flow. Anytime you run a small business cash flow is king, and in a recession there's less cash to go around.

Some would contend it is better to buy a franchise at the bottom of a recession, as the competition is dying out, leaving more customers for you. While this is true, it also puts your back up against the wall as you're getting started with fewer sales. One benefit you could say would be the fact that if you are on a learning curve in a new industry, after you've purchased a franchise and need to have an opportunity to learn the business before things get too busy, and get yourself established before things get hectic as they might at the top of the business cycle.

Still, a franchise buyer needs to ask themselves why they are buying a franchise and they need to consider the reality that they may not be making enough money to pay themselves an adequate paycheck for many months after starting. They will need additional money for cash flow and that money has to be borrowed, and therefore, it also has to be paid back. I just hope you will consider all this and think on it before you go out and commit yourself and obligate yourself to hundreds of thousands of dollars in loans.

Lance Winslow is a retired Founder of a Nationwide Franchise Chain, and now runs the Online Think Tank. Lance Winslow believes writing 24,500 articles by August 24th or 25th will be difficult because all the letters on his keyboard are now worn off now..


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