by Laura Landrum

Created on: June 18, 2008   Last Updated: June 19, 2008

Given the economic down turn, anyone who wants to go into business for themselves may want to start seeking out opportunities and bargains in buying a franchise. A franchise can be in the form of a distributorship such as car dealerships and gas stations or business formats which are common among car care and fast food.

The slowed economy means that a franchisor can negotiate a cheaper price in construction labor, land or lease costs, and possibly even the franchise itself due to weakened sales at the company as a whole. Be aware, however, that any concessions given upfront might show up in the negotiated ongoing maintenance fees and royalties that are charged. Getting good deals in the start up can lead to better profits throughout good economies and bad later on.

The advantages of buying a franchise rather than starting your own business from scratch vary. One important, favorable advantage is that the success rate is higher among franchises than small start ups. Some estimate franchises are up to 90% more successful, but the method of calculating this is speculative and unconfirmed. The availability of other franchisees to learn from and form mentoring circles may be one reason the success rate is much higher. Another advantage is that you own a piece of a larger company that has training and marketing support as well as an economy of scale advantage in purchasing power and price negotiation. Some franchisees will even help with financing. Individual start ups must do a great deal of research and self promotion to satisfy banks and venture capitalists who might decide to invest or lend financing. Transferability is also important. When retirement comes around, a franchise is an established name and can make transferring or selling the franchise to another party much easier than that of an individual small business that must rely on its own individual success and notability to bring in a buyer who must also prove that it's worth the purchase price for financing purposes.

There are also important disadvantages to a franchise and starting one in a slow economy that should be considered, but they don't completely override the good side. The slow economy might mean less revenue upfront, but proper negotiation in pricing and start up costs should lessen this effect and establish an overall benefit. There are restrictions placed on how your business is conducted with a franchise, so it is not completely up to you to run it how you see appropriate. These restrictions are, however, meant to maintain the overall integrity of the company you are representing and the profitably of all franchises under that company. The ongoing fees and royalties will cut out some of the extra profitability that owning a well known and respected company brings, but they could also be considered the cost of buying into an established and supportive company that wants you to succeed as much as you want to.

In all, the tender economy is an opportunity for those who choose to seek out bargains that will deliver continuing future advantages over those who started when things were booming and paid a premium to get a piece of the overflowing profits. Consider also that some businesses such as car lube stations and fast food restaurants are not as vulnerable during down times because they are either necessary or an entrenched way of life for many families on the go.

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