Recession... what recession? Does franchising hold the key to beating the credit crunch?
As the economy slides into a downturn, why are some franchises still set to prosper? And is now a good time to get into your own franchised business?
As we all continue to tighten our belts and prepare for more bad news from the world's financial experts it occurs to me that, within the franchise industry, some business leaders continue to be rather 'chipper' about the situation. Several franchisors are now holding their heads high with the confidence that they are able to provide an investment opportunity that will continue to generate income in the present uncertain economic climate. So I met up with Daniel Lewis and Robin Page of Cash Generator to explore this phenomenon and try to establish if franchising really could be the economic saviour of the day.
Being able to weather a downturn in the economy better than most is a bold statement but may be justified in the case of some businesses. Cash Generator's Franchise Director Robin Page agrees: 'When Cash Generator was set up by Brian Lewis in the early 1990s he had recent memories of the housing crash Britain had experienced in the 1980s. He set his mind to creating a business model that would be viable in any economic climate. What he came up with is actually a business that we believe can survive and grow in periods of economic prosperity but also through any such downturns.'
The Cash Generator principle of buying and selling pre-owned goods through retail outlets has many virtues. The popularity of auction web sites has worked to make the concept even more acceptable to today's 'throw away' generation. Buy it, use it and when you've had enough of it, sell it on and buy the next thing. Where Cash Generator has really excelled is in diversifying their service offering. 'That's right,' explains Daniel. 'Being able to provide cheque cashing, 'till-payday loans, currency exchange and other financial services, such as pre-paid Mastercards, has allowed us to generate additional income streams while increasing the footfall through the stores. Cash Generator has become as much a part of many local communities as their library, post office or bank. People rely on us and that is our strength when faced with difficult economic circumstances.'
So for a business to survive an economic period of decline, offering a broad range of services is important. 'A franchise that relies on the sale of one or two products or services is more vulnerable than one that has a range of items that can be promoted according to market trends,' agrees Daniel. 'So while the commission we earn on foreign exchange is great, if less people are going abroad on holiday then we can turn our promotional focus onto other products, such as our 'till-payday loans.'
Cash Generator clearly offers existing franchisees an opportunity to thrive during a recession and obviously as franchisors you stand to benefit from that too. But what are your projections for head office? 'We're reasonably confident that we'll be able to continue to meet our franchisee recruitment targets,' Robin explains. 'Sadly for many people, a recession means redundancy without fantastic prospects for finding new employment.'
In fact, one member of the Bank of England's Monetary Policy Committee has recently warned that up to two million people could find themselves out of work by Christmas if economic trends continue. 'That's a shocking statistic but this is a great opportunity for people with an entrepreneurial streak to go into business for themselves,' confirms Robin. 'And buying a franchise is often the perfect solution for them.'
I agree and would add that the franchisees that you recruit now, when times are difficult, are likely to be your strongest franchisees in the long run as they are people who have a proven ability to rise to a new challenge in the face of adversity. 'Well, I certainly hope you're right there,' laughs Daniel.
Of course, if you are looking for a franchise investment at this time, choosing the right company to invest in is vital. Robin, what advice would you give to someone who is searching for a franchise? 'Firstly, you should always look to your own strengths and interests. Buying a franchise is your opportunity to make a life changing decision. If you take on a business that you are passionate about, will enjoy working in on a day-to-day basis using a skill that you are good at, then your chances for success are high.
'Always consider the lifestyle implications that run alongside the actual business operation itself. Be realistic about the commitment of time and capital investment you will need to make and think about the implications this will have on your personal life. Talking to family, close friends and your financial advisors is a must, although be prepared for some people to try to talk you out of it! People have a natural fear of the unknown and may be focusing too heavily on the risks involved rather than the opportunity. Keep their comments in mind however, and if you are convinced that a particular business sector is the one for you, then think of ways to overcome those potential problems before you sign on the dotted line.
'You should conduct some serious research when it comes to your choice of franchisor. Ask pertinent questions, like what new earnings opportunities they're in the process of developing for their network. The franchisor should be happy for you to talk to all of their existing franchisees and you should speak to several. It's important to reassure yourself that there are franchisees within the network who enjoy the work, get the support from the franchisor that they need and are making the profits they expected from the business.'
What about business owners who are considering growth through franchising? As a franchise consultant I'm constantly approached by business owners who believe that their operations have franchising potential and I've not noticed any decline in those enquiries. From your experience, is this a good time for businesses to be getting into franchising?
'I think it's as good a time as any,' Robin speculates. 'Obviously, franchising is an excellent way of building a business and a brand with lower central overheads. You're sharing the risk with a highly motivated franchisee but of course, in turn you will see less of the profit benefits. My main concern is for those companies that view franchising as a 'get rich quick scheme' or a way of buying themselves out of financial difficulties. Becoming a franchisor is a huge responsibility and franchisees are likely to need your support and guidance more than ever in these challenging times. Having the infrastructure and financial backing to provide that support is vital for the success of your network. If you don't have those things in place then my advice would be to wait until you are in a position to offer them before taking the franchising plunge.'
I certainly agree with that. Underfunding is a common problem, especially for franchisors that are new to the industry. Daniel and Robin, thanks for your time and good luck with proving Cash Generator's multi-income stream business credentials over the coming months.
Written by Tony Urwin