While many franchisees plan for economic downturns,...
It's vital that you assess the potential risks of each franchise opportunity you're interested in to determine where they are on the risk axis. The potential risk of each one won't be limited to a single factor; instead, it is a sum of all the factors that could cause your investment to tumble. Take a look at some common franchise risk factors so you're better able to measure the risks associated with the brands on your interest list.
If a franchise has been around for years and now has an established market, it's likely that it will be around in the future provided there are no radical changes in the market. However, if your franchise is newer to the market, you'll need to be more careful. A franchise fad can make you money, particularly if you are in on it early, but it can also go out with a whimper relatively early on in your ownership.
You will also need to decide whether a concept can work well in your market. If, for example, you're from North Carolina and love local barbecue but go to Texas and see they don't have this style of barbecue on the menu anywhere, you may think there's a great opportunity in Texas for it, and there could be. However, this could also be for a good reason. In North Carolina, barbecue is pork, and in Texas, it's beef. In Texas, this concept could just as easily sink or swim.
The seasonality of a business matters, too. An ice cream franchise is going to see foot traffic all year-round in Florida but may struggle during the colder months in places like New York. This could, in fact, be what you want--to work for part of the year and do something else during the off-season--but you will have to plan for the time during the lean months if that is the case.
Consider how each business model will stand up under varying economic conditions. While there is never any guarantee, some types of businesses will do better than others when financial times are tough. In lean times, people will put off using some services, for example, but they are less likely to cut off expenses that are medical, educational or otherwise viewed as essential instead of discretionary. They will still reduce their spending in these areas, but they're less likely to stop using these types of services or products entirely.
All businesses come with risks, so it's important to decide which ones you're willing to take. Do a risk assessment of each franchise you're weighing to help you make a fully informed choice.