Will The Current Economic Downturn Boost The B2b Franchises Industry
We have all heard it, recession proof franchise
. It is being used by hundreds of franchisors now in their marketing material but what does it really mean?Quite simply it means a business which is not affected by slow growth and cuts in spending. This sounds as simplistic as it does stupid, how can a business not be affected; surely all businesses must be affected to a certain extent? It is however possible that where someone may not pay thousands of pounds for a holiday, instead they may pay a few hundred pounds on a new TV (home luxuries), and if we go down the line a bit, someone with less resources may not pay hundreds of pounds for a new TV but may pay for a new Xbox game, and one step further, someone who can no longer pay 30 for a new Xbox game, well, in all intents and purposes is broke.
There is no such thing as a recession proof business. Every business is going to be affected in one way or another, the recession proofing of a business is entirely dependent on the upper management's ability to adapt to current spending and demands. This however was not the subject of the article.
How can the franchise industry benefit from an economic downturn? Again we have a simple answer:
As more people are being made unemployed, many with redundancy packages, there are more people available for employment and purchasing a franchise, a ready made business to take the place of their old job and one with a track record of success. In particular B2B franchises are taking off as seeing an increase in sales due to more small businesses being set up to cope with the demand of higher unemployment
Is it as simple as that though? No, of course not. Although franchise sales "may" rise, and I am expecting this to be the case come the summer of 2009, the income that it is possible to generate per franchise is likely to drop. This does not mean the franchise business is not a viable option but it does mean that the expected turnover figures for each franchised business should be modified accordingly. This drop in turnover for each franchise outlet will mean a decrease in the overall turnover for the franchisor, a drop in their monthly % of profits and despite the expected boost in franchise sales cutbacks are likely to be made in areas of IT, and staff. The only area I foresee staying the same is marketing. Marketing gets pride of place in franchising, most franchisors get a monthly marketing fee from their franchisees and as such their overall budget "should" stay on a relative plateau.
All franchises are based around expansion and branding, if the expected increase in franchise sales happens, along with it comes increased brand awareness as the network grows. This is good news for franchise buyers and existing franchisees as more money gets added to the marketing pot and due to the increased presence across territories the brand goes through a burst of organic growth.
The Good News
For the franchisor
An upsurge in unemployment and redundancy packages could lead to higher franchise sales
For the franchisee
It could well be that despite a change in peoples spending habits; organic growth and paid for marketing could be a real boost for franchise owners and buyers.
The Bad News
For the franchise buyer
For those franchise buyers who do not have the required capital, and/or are experiencing negative equity on their house, raising the capital through the normal method of bank loans could prove tricky.
For the franchisee
Expected turnover could see substantial drops in 2009/10
For the franchisor
% of profits from franchisees are likely to drop over the next 2 years (boosted however by franchise sales)
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