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WHAT OLD FRANCHISORS KNOW AND NEW FRANCHISORS DON'T

by Simon Lord,
last updated 29/07/2009

in this article:

October 2008 - Every cloud has a silver lining, although new franchisors may not recognise that yet.

Talking to franchisors over the last few weeks, it's been interesting to hear the difference in attitudes between the old hands and the newbies. While all are concerned, the old hands know the cycle. In a strong economy, such as we have enjoyed in the last few years, businesses have performed well but franchise recruitment has been more difficult. When the economy falters, sales may dip but, paradoxically, system growth becomes more possible. We haven't seen the silver lining yet but here are some of the signs to look for over the next few months:

Resolution of uncertainty: Every three years the election campaigns make people wait before committing themselves to new directions. This year, the NZ election coincides with a US election which has been made more relevant that ever by the economic issues. Once the elections have taken place, franchise buyers will feel they understand the conditions under which they will be operating better.

Job vulnerability: The fear of unemployment can be as powerful a motivator as the reality. Now that large redundancy packages are no longer the norm, people are more prepared to jump before they are pushed.

Fall in interest rates: High interest rates have been a barrier to entry for some time now. With the rates coming down - and given the banks' positive attitude towards well-proven systems - good franchise models will be more attractive and more affordable. According to the New Zealand Herald, people paying about $32,000 a year at last year's high interest rates of 10 per cent could be soon paying $25,000 if rates fall to 7 per cent.

Savings: Property may not be such a good bet, and people might have less equity than they did, but lower interest rates (and the small tax cuts) will help their perception of their own cashflow.

Sunshine: Don't under-estimate the powerful impact that sunshine has on the psyche. As people take time over the summer to be with their families, that idea of self-employment becomes more desirable. The start of a New Year is also a good time to think about new directions - and with most franchisees being in that 30-50 age range, they don't want to wait until the ‘perfect' time, whenever that might be.

So if you haven't led your franchise through a downturn before, don't panic. Things may not be easy over the next few months but as some aspects of your business tighten, others will get easier. If you've structured your franchise correctly, it could turn out to be a good time to grow.

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