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Is This the Time To Consider Buying a Franchise?? 

Is now a good time to consider starting a new business in light of the unpredictable economy?  That is one of the most important questions that potential franchise buyers are asking today. 

The US government has declared that the recession is over. The last housing market report showed an upturn in new home sales. New additions to the unemployed appear to be a declining. The stock market has enjoyed fantastic growth over the past few months. Many analysts declare that the bear market is dead and that we are well into another bull market. The “Cash for Clunkers” program added a tremendous stimulus to the automotive industry. One could easily conclude that “Happy days are here again,” and that the economy is no longer an issue of concern.

However the skeptics believe that it is a little early to celebrate.  They argue that the stock market is emulating the great depression market cycles where after the first crash there was a dramatic recovery much like our current market climb.  That was immediately followed by another crash bringing the Dow even lower than the first crash.

Their arguments are based upon lack of consumer spending, estimates that by 2011 48% of US housing will be of less value than the mortgage financing them, continued rising unemployment, a global recession even including China, a federal debt that is becoming unimaginable and unrecoverable, rising taxes, and ultimately massive inflation.

It is not my objective to try to convince you which of these two scenarios is more likely.  Regardless of which position you choose to defend, I believe that this is a good time to invest in a new franchise business.

If, in fact, the worst of the economic downturn is behind us, now is a great time to start a business to ride the rising tide.

However, even if the pessimistic view is closer to reality, I personally believe that buying a franchise business now is one of the best investments that you could possibly make. 

We all know that job security is a thing of the past, particularly in this economy.  The unemployment figures verify that fact.  We cannot reliably depend on someone else to ensure our income and future security.  Although owning a franchise does not guarantee income or security, it certainly places the franchise owner much more in control of his own destiny.

But what about that nest egg that you have been building?  Is this a good time to invest it in a franchise?  Let’s consider your alternatives:

1.       Most people would agree that the stock market is overpriced, and a risky place in which to have your future security invested today.  The need for caution is further substantiated by the very high rate of insider sales, always a precursor to a sell off.

2.       Real estate is enticing because of current low prices.  However, most estimates that I read say that prices are going to continue to decline for some time, and it will be several years before we see much appreciation.

3.       Commodities are certainly a possibility since they tend to do well when the stock market declines.  However, they are very volatile and unpredictable.

4.       There is always the option of hiding your money under the mattress.  Unfortunately, not only will it not make any money for you there, but it is quite likely that its purchasing power will diminish substantially over the next few years.  Most economists predict that we will experience extreme inflation to pay for all of the cash infusion created by the government stimulus strategies. 

So ultimately you are faced with the questions of how to generate your income and where to place your investments so that you have the most control over your financial income, security, and growth. Regardless of whether you are optimistic or pessimistic about our short term financial future, buying a franchise before high inflation sets in may be one of your best opportunities, and warrants your serious consideration.

Your choice of what types of franchises to consider should be influenced by your bias of which direction the economy will take.  Some will perform better than others during economic downturns.  For example, during a difficult economy, people will tend to hang onto their existing cars longer, (exclusive of the Cash for Clunkers program), making an auto repair or auto parts franchise attractive.  Lower priced retail, food, and services will also benefit from a tight economy while costly luxuries will not do as well.

 I encourage you to not let the current uncertain economy derail your pursuit of a franchise business, but to move ahead with prudence and with strong sensitivity to how the economy will affect that business before you make your final selection.

Bill Wood is a Franchise Consultant with FranUnite