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considering a franchise for your investment?

Is A Franchise Investment Worth It Right Now?

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In this article

The current Covid-19 pandemic has been a humanitarian crisis of epic proportions with millions of tragic deaths and an untold impact on the global economy. The worst world recession since the 1980s, the global GDP fell by 2.3% in 2020 as a direct result of anti-Coronavirus measures that have seen nation after nation essentially close its borders, communities and commercial interests.

While many sectors have been greatly affected, mostly those that involve public gatherings such as catering, hospitality and retail, the world has still prevailed as life goes on and most businesses have come through the pandemic relatively unscathed as they were either required or have adapted to a new methodology.

Businesses that have somehow managed to come through the global catastrophe include such things as courier services, utilities and cleaning services, all of which have demonstrated that they are needed as a part of daily life. This is no more evident than some of the strong small business franchise options which offer a direct glimpse into the types of operations that are performing admirably despite a worldwide pandemic.

So what are the benefits of operating a franchise at this point in time?

  • Established Businesses
  • Relatively Little Investment Required
  • Recession-Proof?

Operating under an established business name and model relieves a franchisee of the pressure of beginning a new company while many franchises, especially smaller businesses, don’t require massive amounts of initial money and the majority of businesses that offer franchises appear to be recession-proof to a degree.

A Solid Foundation of Success

The greatest advantage that a franchise operation has to offer is that it is already an established and profitable business that is looking to expand. This expansion method typically falls on the franchisee to take on the required responsibilities of a particular company but the franchisee is granted a license to operate under the name of said franchise, therefore capitalising on the established reputation of the business.

However, there are usually strict rules and operating procedures placed on a franchisee since the good name of a company is at stake whereby certain expectations are placed upon it. Even though there are limitations on what a franchisee can and cannot do while operating under a company name, around 90% of franchises are successful, which is a huge increase over the approximately 15% of brand new businesses.

Varying Degrees of Investment

There are currently 30 million small businesses accounting for 99.7% of all businesses in the United States alone, but only around 800,000 of these are franchise operations. While a McDonald’s franchise could set you back at least £350,000 in the UK, most franchises for small businesses offer very reasonable investment opportunities over larger corporations and can start from as little as £3,000 to £10,000 with some offering free opportunities that probably should be avoided. Established and respected websites such as Franchise Direct offer reliable and informative metrics by which you can decide whether to invest in a particular small company from many sectors.

A few thousand dollars might seem like a lot of money but considering that the average amount of savings of the over 55’s is around £20,000 and the average annual franchise income is between £30,000 to £100,000, a small investment with a small franchise might be the silver lining you need following a job loss due to Covid-19. 

However, it should be noted that even an investment into a franchise is still an investment and retains all of the risks that come with any other investment type. Additionally, as a franchise owner you are expected to work very hard to achieve success and you cannot just sit back and wait for the money to come in as you would with a stock investment.

Some Can Weather a Storm Better Than Others

One of the major questions regarding the world of franchises is whether they are recession-proof. The short answer is probably ‘yes’, because they are still around and many of the types of businesses that have become successful franchises are the kinds of things that continue to sell well during a recession such as clothing, food and pet items. With that in mind, it isn’t wise to think of any business to be recession-proof as unforeseen events such as a worldwide pandemic can have a major impact on any business given the right (or wrong) circumstances.

Covid-19 has caused recession-like economies in every nation all over the world and the continued operation of specific industries has highlighted the recession-proof qualities of some business types. Courier services have reported a sharp increase in business with Royal Mail reporting that parcels outperformed letters as their biggest profit contributor at 60% in 2020, while food couriers such as Deliveroo have seen a massive increase in orders because people cannot go outside to eat.

A Humble Opinion

Whether a franchise is actually worth investing in is down to economic events, world events, local events and future predictions depending on a business, just like any other investment. Due diligence on the part of the investor is essential when making a decision that could cost you part or even all of your life savings and if you aren’t sure about a particular franchise then it might be best to pass on it or seek professional advice. 

If you feel that a specific franchise might be good for you at this moment because you have lost some income or you are looking to future proof your income potential, then by all means pursue the investment with vigor and positivity but keep in mind that any investment comes with risk.

The risk of failure with a franchise is relatively low but this is ultimately determined by the amount of work you are willing to put into a business. Even a franchise such as KFC or McDonald’s won’t automatically guarantee a return or success, and research, activity and effective management will always be vital if you are to capitalise on the good name of an established and well-respected company.

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