Our job is to help our clients reduce risk, so we’ve put together our list of recession-resistant franchises and questions to ask during the process.
Starting your own business comes with risk in any economy, especially if you're building it from the ground up. Not only is there the financial strain, but ask any business owner and they'll tell you about the rollercoaster of emotions that comes along with it.
Steve Jobs once said, "I'm convinced that about half of what separates successful entrepreneurs from the non-successful ones is pure perseverance." I think we can all agree that being a business owner will never come with a shortage of challenges.
The difference between starting your own business and becoming a franchise owner is either facing those problems on your own or buying into a system that has already met and solved the majority of those problems. Franchising not only allows you to become a business owner with proven systems already in place, but also gives you a network of people to support you.
Franchising has exploded over the past few years. According to franchising.com, in 2021 franchising added over 46,000 jobs per month, and is still expected to continue expanding in 2022.
Savvy investors have flooded into franchising because they provide businesses that can both scale quickly and are resistant to a recession. During a recession or economic downturn, it's especially critical to make smart investments. One smart way to make the most of the money you already have, as opposed to taking out more loans, is by taking advantage of the ROBS program (Rollover as Business Start-Up). This is an incredible strategy to gain early access to your 401(k) money without paying the IRS a dime in taxes or penalties.
Not only does a franchise reduce your risk of failure by providing a proven structure, but you can also protect your business even further by investing in a recession-resistant franchise brand.
Questions to ask when evaluating a franchise brand
There are of course several things you should look for when investing in a franchise during any economy. The following are particularly important, especially during an economic slump:
- Is the product or service they provide a want or a need?
How critical is this business to the average consumer, and will they still spend money on it when finances are spread thin? There are varying degrees of what can be deemed a want or need, but there are many essential-service franchise concepts out there to explore that can thrive even during a recession. All Dry Services is the perfect example of a need-based franchise that helps save the day for consumers during unexpected disasters. - Do they have a strong leadership team with a vision for the future?
A strong franchisor separates the average brands from the exceptional. A founding team with a clear vision for what's to come and a proven track record of executing these ideas is often the difference between a business thriving during hard times and struggling. A franchisor's passion translates into franchisee success. Two great examples of exceptional leadership in franchising to check out are Koala Insulation and Best Choice Roofing. Both founders, Scott Marr and Wayne Holloway, have spent years perfecting their processes and have some of the most impressive systems we’ve ever seen. - Have they seen consistent growth since they started franchising?
Growth is a major success indicator, especially for brands that recently started franchising. Just because the franchise system is young doesn't mean they aren't pacing strong and set up for success. This is why validation is such a crucial step of the process as well. Sure, they may be exploding, but are franchisees happy and successful? You'll be able to find this out during your validation calls. - How strong are their Item 19 financials?
Not every franchise brand represents the same financials in their Item 19, but it's important to know how to determine what is a strong Item 19. Some list multiple franchise locations and their profits, while some only list one. Talk to your franchise advisor about comparing Item 19s and how to determine what brands will prove strong financials in any economy. A great example of a strong Item 19? Check out Zoom Drain. Their super detailed Item 19 shows franchisees averaging over $1 million in sales, and their top location doing over $11 million! - How do they differentiate themselves from competitors?
There are many ways to examine competition – many competitors in the area can indicate a serious need for the product or service in that particular market. A great first step is to check out the competition's Google reviews compared to the brand you're interested in. What are real customers saying, and how is your brand offering something different, or better than the competition in your market? - What kind of support systems are in place?
This is particularly important during a recession. Are the support systems in place strong enough to power franchisees through a rough economy? Do they have a proven track record with marketing strategies, technology packages and solutions to problems like supply chain issues? Has the franchisor already put systems in place in response to problems they encountered while growing the business? These are all great signs of a resilient brand.
Your franchise advisor should walk you through each of these when evaluating a franchise brand, and help you get all the answers to make you feel confident in your investment decision.
Now that you have your questions ready to evaluate the top picks, it's time to talk industries. We've compiled a list of our favorite recession-resistant franchise industries to help investors feel more confident and reduce the risk when buying a franchise.
Recession-resistant franchise industries
Home services
The reason we represent so many incredible service brands at Franchise Sidekick is that they provide essential or high-demand services in booming industries. Many of these home service brands don't slow down during a recession because they deal with need-based industries like roofing, plumbing, parking lot maintenance, home repairs, etc. Think about the companies that stayed busy during COVID, and you'll find every one of these home service brands. EverLine Coatings and Services is a great example of a need-based service that many probably wouldn’t consider. Every business with a parking lot is required to maintain it, no matter what the economy looks like!
Healthcare
This one seems pretty obvious, but there are some healthcare-related franchises that may not have crossed your mind. Senior care, drug and alcohol lab testing, medical billing, medical staffing and optometry franchises are just a handful of examples of brands that provide incredible opportunities during any economy.
Automotive
Don't worry, we're not going to make another joke about gas prices. Even if you're cutting back on driving, we all still have places to be, which means we have cars that need to be serviced. During a recession, many people hang on to their cars and continue to get them repaired, rather than shelling out thousands for a new car with a ridiculously inflated price tag. Automotive services and repairs will always be a must. Check out Strickland Brothers for an automotive brand with strong leadership, national accounts and executive ownership models.
Food & grocery
We all know restaurants took a major hit during COVID, but grocery stores were deemed essential businesses. After all, we all gotta eat no matter the state of the economy. Many people cut back on the unnecessary luxuries during a recession, but food budgets for groceries and even fast food remain strong.
Chat with a Sidekick advisor (at no cost to you) about our recession-resistant brands.
