Franchising in a Down Economy

By Jeff McKinney • jmckinney@enquirer.com • December 19, 2008
Downsized by the mortgage meltdown, Al Cooper suddenly was forced to find a new job.
Cooper, formerly vice president and director of operations at Fidelity Mortgage for five years, lost his job in November 2007 after the subprime debacle led to liquidation of the company. Cooper, a divorced dad with three boys, needed work and to stay here.
He used about $25,000 in savings last month to launch Caring Transitions, a home-based franchise that offers estate sales and other services for senior citizens and their families.
Cooper, 50, said he liked Caring Transitions because its business model was less risky than other companies and offered more potential growth with baby boomers aging.
"I also was concerned I would not be able to find another job in the corporate world due to my age and experience," Cooper said.
Welcome to the franchising world in a sour economy. Cooper joins other former executives from around the country who have decided to become franchisees.
When you buy into a franchise business, you get marketing, advertising and training support you typically do not get with an independent business, said Alisa Harrison, spokeswoman at the International Franchise Association in Washington.
She said a franchised business allows an entrepreneur to take advantage of a proven business model and a proven brand.
"In good times and bad, a franchise allows you to go into business for yourself but not by yourself," Harrison said.
And with a recession-like economy, entrepreneurs say franchises allow you to be your own boss and control your destiny.
In a weak economy, Harrison said, you have a workforce that's been laid off, and many of these people are taking their severance to start up franchises.
But potential franchisees also should be cautious before jumping into business.
Chuck Matthews, executive director of the University of Cincinnati's Center for Entrepreneurship, said one of the cons of buying into a franchise are the initial costs, including the franchise fee, investment cost and royalty payments.
But on the other hand, he said, a franchisor often will provide financial assistance to a qualified franchisee to start the business.
He said potential franchisees also should be careful with such things as restrictions on their sales territory, what items they actually can sell and shared costs tied to marketing support.
"It's critical that you do your homework before starting a franchise, particularly in a weak economy." Matthews said.
Jody Wallace, formerly a stay-at-home mother, and her husband, DeWight, opened a Pump It Up franchise 3½ years ago in West Chester Township.
The business offers a giant, indoor, inflatable playground that offers private parties for children.
The couple invested about $400,000, including franchising rights, equipment and build-out for the business. DeWight still works for a large local company.
Jody said the business allows her to do her part in generating income for the family, while using her event-planning skills to help make kids happy.
She said the franchise allows her to offer services she could not provide with her own business, including an art camp for kids and corporate team building for adults.
"A franchise offers you the support you need in one package."
Also wanting more financial security, Becky Gabbard turned her love for animals into a business. She invested $10,500 to launch a Fetch! Pet Care franchise in October.
The business provides professional at-home pet-sitting, dog-walking and other services.
"It's a very lucrative business and it provides a service people need regardless of the economy," she said.
Harrison said her group represents franchisees ranging in age from 25 to 85, and franchises that range from pet-sitting services to automotive stores like Jiffy Lube.
She said individuals can open a franchise for as low as $20,000 and high as $2 million. Harrison said the figures include upfront costs.
Harrison said the biggest challenge facing potential franchisees now is getting credit and affordable financing.
Author Jim Coen, who has been in the franchising business for 25 years, agreed.
He said the recession could be limiting the number of franchisees because of the credit crunch.
"It's not as easy today to get a deal financed as it was a year or two ago," he said.