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Thursday, October 1, 2020
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The best time to buy a franchise

The decision to buy a franchise business will be one of the largest decisions in most people’s lives. And like life’s other big decisions, deciding on the right time can be challenging.

A number of factors come into play, and like life in general, no two people’s situations are identical.

From working within the franchise sector for many years, it has become clear to me that there are certainly factors that influence and those that should be considered when thinking about when is the right time to buy a franchise.

One of the first things people tend to consider is the economic cycle. Business confidence, or the view of where the economy is or is heading is important. You may be more confident in investing in a franchise if the economy is looking good. And you would probably be right.

An economy in growth generally speaking is good for business and a good time for someone to invest and operate a franchise business. The old “a rising tide lifts all boats” analogy.

Assess the economic cycle

While a buoyant economy increases the likelihood of a new franchise business doing well, does a slowing economy or decaying business confidence environment make for poor timing? Not necessarily. In fact, there can be a number of reasons why it’s actually a good time.

An upside is that weaker economies are often accompanied by lower interest rates, making borrowing less expensive and contributing towards improved profitability and return on investment. Coupled with the fact that most business owners will also have a mortgage, they create a double happy scenario. A franchise may also create stability if you are concerned about, or facing, redundancy.

What about business and consumer confidence and the rising tide analogy with an outgoing tide?

Well, some sectors, businesses and franchises actually do well and even relatively better during economic downturns and buying into these during that period could be beneficial. A couple of categories that surged during the GFC were casual dining and liquor retailing.

However, I would suggest the most important factors are based on your personal situation. Consideration needs to be given to your capital base, age and experience, energy levels, family commitments and support.

Age and experience will influence not only when and whether you have the work and life-experience skillset to successfully operate a franchise business. It may also influence how much capital you have and are willing to risk.

If you are older, you can perhaps not afford to risk as much, so while you have more capital, you may look towards established brands and businesses and a farmer versus hunter approach. What are your income and debt servicing requirements, do you need a certain income or are you after longer-term capital gains?

And, how would the potential earnings and capital gains from a franchise compare against your current income over time?

How much energy do you have to commit to a new business venture and what sort of hours can you manage?

Any new business will require significant initial hard work, so there is a balance between youth and experience. How are your health and energy levels?

Lastly and most importantly for both the success of and satisfaction from your franchise is what are your family commitments and the family support structure you have in place? You need to be able to balance life commitments outside the franchise as well as having the full support of your family.

So while the economic conditions are important, the personal checklist of your personal position is the critical factor in determining when it’s the right time for you to jump into a franchise.

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Nathan Bonney
Nathan Bonney
Director of Iridium Partners. He can be reached at nathan@iridium.net.nz or 0275-393-022

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