5 signs a franchise can beat a crisis

By Sarah Stowe | 02 Apr 2020 View comments

If you’re buying a business you want to choose one that has the potential to ride out economic peaks and troughs. And a franchise that can survive a significant downturn is worth investigating, as our current health and economic crisis illustrates.

So here is our guide for what to look for in a business with reliability and resilience on its side.

5 signs a franchise can beat a crisis

1.  It provides an essential service or product

Although there is some confusion about what an essential job is right now, there’s no doubt in most people’s minds that some sectors are crucial to our society: healthcare, transport and logistics, supermarkets, pharmacies, childcare and education, repairs and maintenance, health and safety…

This is the starting point for considering if customers have a real need for a product or service. Of course there’s a broader list we can create – some of us will add a barista to the list while others opt for a personal trainer.

Flip this on its head and reflect on whether a franchise is offering a niche business, a nice-to-have offer that will be the first thing to go when customers start penny-pinching.

What is important is to think about how susceptible the business is to market fluctuations.

2 . It’s been trading a long time

Longevity is far from a guarantee of ongoing success – the retail graveyard is evidence of that. However, any long term business, particularly one with family ownership or long-serving management, will have grappled with lean periods and learned how to adjust, refine and refocus to survive.

When you invest in a heritage business you also tap into years of experience that is invaluable when it comes to the day to day operations of your own franchise.

A well-established business will have great systems in place that have been tried and tested and tweaked.

Consider: is the brand highly rated in the industry? Does it have a good reputation with banks? Is it transparent in its dealing

3.  It’s forward thinking and flexible

The counterpoint to relying on experience and longevity is the capacity to think quickly and take action to shape a business for what it will face in five years time. A forward thinking franchisor and head office team are investing in a brand’s future performance, building digital platforms, embracing new ways of working, and recalibrating its own place in the market.

It will be an outward-looking franchise operation that takes feedback from its franchisees, and is a good communicator of its vision and purpose.

4.  It offers strong support for franchisees

Every franchisor will tell you it offers great support for franchisees. In many cases this is true, but not all. There are two ways to approach the level of support provided – decide what you think you will need based on your own skill gaps and inexperience; look for the highest level of upfront training and ongoing support based on what existing franchisees experience.

Support is a loose term that can cover the practical and the emotional: from area manager visits, franchise advisory councils and regional meetings to lead generation, invoice chasing and staff training.

There are some basics you can expect to see – training, marketing and business development. However a well-structured support team that is proactive as well as reactive, can stand a franchisee in good stead. When times are tough for an individual, or the group, support from others is crucial.

Find out how the franchisor has reacted when individual franchisees have been in distress – that will give you a clear idea of whether or not the business has the right approach.

5.  It is economically viable

This is obvious because everyone needs a business to be bringing in money but the reality of it can be overlooked. A franchise that is profitable in the good times may not survive a cutback in spending if rents, wages and other expenses are too high.

Things to check: franchise fees, supplier rates, planned capital expenditure, lease negotiation.

When shaping a business plan as part of your franchise due diligence, it’s vital to set different scenarios to understand a true break-even point. As a business owner you’ll need to manage cashflow, maybe keep staff employed, pay taxes and superannuation as well as rent, a bank loan, insurance and franchise fees.

You need a franchise that can operate on lean margins if it has to, and it’s important to understand the differences between turnover and profit.

There are plenty of great franchise businesses in Australia which can tick all of these five points and come through a downturn ready to flourish.