If you’ve been watching the economic news over the last six months or so, you may be feeling a bit confused. Outlets report that the labor market remains tight, but tech companies keep making headlines for layoffs. Persistent inflation has driven up the cost of some goods ($7 eggs, anyone?) while others, like gas at the pump, have gone down in price. Home sellers reaped the profits of frenzied bidding wars in 2021 and early 2022, then watched the market cool as interest rates rose.
But through all this whiplash, one thing has remained steady: stocks have been fighting a bear market, and economists keep predicting that some kind of recession is just around the corner. If that makes you nervous, you’re certainly not alone. But I’m here to encourage, not frighten, you. In fact, I want you to know that 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, fell by about 24% between January and June 2022 and has not yet recovered. 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
The Empowered Franchisee does have some candidates who are second-guessing their plans right now 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 and spread risk across units.
Normally, I 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 bear 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 likely be preparing to rent or buy your location when space costs are down.
The Value of Experience
For our candidates, yet another factor often comes into play when considering the wisdom of franchising in a recession. At The Empowered Franchisee, we work primarily with seasoned executives – people who have seen multiple recessions and bear markets come and go. And 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 us to learn more about how our process works. It just takes 20 minutes to get started on your journey to professional and financial freedom!
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