Why does franchising grow when economy slows down?
Some economists have noticed the following trend: there is a negative relation between development of the economy of the country in general and development of franchising (as a system) in the same country. They even paid attention that it is a worldwide tendency. When economy faces its peak and there is almost full employment, salary and wages are enough high and interest rates also. Most of people are satisfied with their jobs and are not thinking about business in general and franchise business particularly. But when economy slows down, stock-market return ratios are low, franchising increases its popularity.
You may say that this theoretical information is not useful for ordinary franchisors and franchisees. Maybe it’s so but it can be very useful for those just thinking about starting their franchise business.
While buying your franchise business you may get additional information from general economic overview. I suggest taking into consideration the following:
1. When economy grows or reaches its peak the situation is close to full employment. It means for you that you can face difficulties trying to hire good specialists for not very high salary. To get the people you want you need to offer them big money (to make them to throw over their current jobs). Are you ready for such an increase of your costs? Or are you ready to give up the qualified employees and substitute them with less qualified stuff? In this situation I can offer to think about the franchise business that requires less personnel in general and less high-qualified personnel particularly.
2. When economy grows interest rates are high. Can you afford an expensive credit? Maybe it is better to think over other sources of financing.
3. When economy grows people buy more, the total demand in the economy is rather high. It means that if you start quickly (before this growth ends) you can get the benefit from this. And franchise business in this case is better than standard one (as I think). When you sign a franchise agreement you get almost a complete set of answers to possible questions in all spheres of your prospective business. You can start almost immediately. But when you start yourself you will need some time to find those answers.
When economy faces a recession the things go just the opposite. I hope my thoughts will help you in decision-making.