The U.S. economy has experienced at least 19 major recessions, from the Panic of 1797 all the way to the pandemic-fueled downturn of 2020-2021. The causes and effects of these recessions vary, but one thing is certain: we will have more of them. And even when we’re not officially experiencing a recession, widespread financial challenges–such as the severe inflation of late 2023 and early 2024–can cause recession-like effects on the economy. So what’s a franchisee to do? Fortunately, recession-resistant franchises do exist.
A lot of people see entrepreneurship as a very high-risk endeavor–and it is, in some ways. But it also gives you more control over your business, which in turn provides insurance against unpredictable events like recessions and other economic downturns. (Read more about my thoughts on this.) Recession-resistant franchising also has a preventive element to it. By choosing the right franchise or business setup from the start, you can proactively reduce your risk of loss. Keep reading to learn how.
Focus on the Essentials
If economic resilience is your primary concern, start by choosing a franchise that provides essential goods or services. These are the things people will continue to purchase even in a downturn, because they need them to maintain health, safety, or a basic standard of living. Examples of these kinds of franchises include:
- Health care services, such as home health care, elder care, or medical transportation
- Daycares
- Gas stations and car repair franchises
- Hardware stores
- Essential home services, such as plumbing repair, flood remediation, and HVAC repair
Franchises that offer affordable luxuries (think fast-food restaurants or budget/mid-price salons) can also be highly recession-resistant. People may reduce their visits to these franchises during a recession, but they almost never stop going altogether. That’s because little splurges, like fast-food takeout or a new haircut, often serve as an essential coping mechanism in difficult times.
Choose a Home-Based Franchise
You can also improve your recession resistance by working from home. With a home-based franchise, you avoid a lot of the overhead required by a brick-and-mortar setup. Your startup money goes farther to begin with, since you don’t have to acquire and build out a space. And your ongoing expenses are lower, since you have no rent or mortgage, utilities, cleaning service, security monitoring, or other building-related costs to pay. As a result, you can much more easily weather any downturn in your business volume. If necessary, you can even put your business on hold for a while and then restart it with minimal effort.
Set up Multiple Locations
If you can afford the up-front investment, multi-unit ownership is also a good way to hedge your bets against a recession, especially one that affects different cities unevenly. It also has the bonus effect of buffering your business against localized events such as natural disasters or disease outbreaks. If one location suffers a slowdown, the others can continue to provide revenue. You may even be able to increase revenue at the other units by temporarily shifting resources there from the slow location.
Multi-unit owners and area developers also benefit from economies of scale. They can hire one manager to oversee multiple locations, plus leverage their size to gain better deals with suppliers and contractors. All this means better per-unit economics and greater opportunity to build an operational cushion, which can be crucial to surviving a recession.
Whether talk of another recession has you looking for new opportunity in the franchise world, or second-guessing your franchise ambitions, I can help. The consulting process will help guide you to the right franchise for your needs, whether that’s a financially resilient business or just something new and more exciting. We can get started with a 20-minute phone call–book some time with me today!
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[…] The American economy is dynamic. New industries appear seemingly overnight in response to technological breakthroughs or consumer trends. And whole industries may fade or even fail for many reasons: poor leadership, changing consumer preferences, new policy directions, even (as we’ve learned over the past year) disasters and pandemics that cause major economic downturns. […]