In an unstable economy, building wealth can be a challenging task. With the increasing number of bank failures, investors are looking for safer ways to diversify their investment portfolios. Buying into a franchise may be the answer to this dilemma. Franchising offers numerous benefits as a long-term investment strategy and has proven to be successful even during turbulent economic times. In this article, we will explore the advantages of franchising, the potential industries to invest in, and why it can be a safer option compared to traditional investment methods.
The Advantages of Franchising as an Investment
Investing in a franchise provides several advantages that make it an attractive long-term investment option. Franchisees benefit from substantial brand equity, proven business models, training, ongoing marketing support, and access to capital. The franchise model allows investors to acquire a proven business model that has been tried and tested in various locations. Franchisors also provide extensive training, support, and guidance to ensure the success of their franchisees. This level of support and expertise reduces the risk associated with starting a business from scratch. Additionally, franchising offers the opportunity to open multiple locations under the same brand, increasing the potential for business growth and revenue generation.
Industries with Long-Term Growth Prospects
Certain industries have proven to be resilient even during economic downturns. These recession-proof franchises have demonstrated their strength and viability in challenging times. One such industry is commercial cleaning. Commercial cleaning companies have been relied upon to keep businesses clean and disinfected, especially during the Covid-19 pandemic. The demand for commercial cleaning services is expected to continue growing, making it a lucrative investment opportunity. According to industry analysts, the commercial cleaning industry is projected to reach over $468 billion in revenue by 2027, representing a significant increase from its $308.7 billion value in 2020.
Apart from commercial cleaning, other industries such as food and beverage and health and wellness have also shown resilience during uncertain economic times. Franchise investments in well-established brands like Subway, Dairy Queen, and Anytime Fitness offer the advantages of brand recognition, proven business models, and ongoing support.
Master Franchising: An Investment Opportunity
Master franchising is an investment strategy gaining popularity due to its potential for long-term success. This approach involves taking control of a region or territory to expand unit franchises under the same brand umbrella. As a master franchisor, investors have the opportunity to make high-level business decisions while the party franchisees handle day-to-day operations. This structure provides investors with greater freedom and autonomy, allowing them to run their franchised business according to their preferences. By leveraging an established brand, master franchisors can attract potential franchisees who may not have considered starting their own business otherwise.
Franchising vs. Traditional Investment Methods
Investors often face the dilemma of choosing between franchising and traditional investment methods such as savings accounts or stocks. Recent events in the banking and financial sectors have made many individuals wary of keeping their cash in savings accounts. The low returns and the risk of bank failures have led investors to explore alternative investment options. Franchising offers a potentially safer and more attractive investment opportunity. The franchise disclosure process allows prospective franchisees to thoroughly review the rules, laws, and requirements before making an investment. Franchising also provides structure, ongoing support, and access to proven business models, increasing the likelihood of achieving profitability sooner and sustaining it over the long term.
Shortened Timeline to Profitability
Starting a business from scratch can be a time-consuming process with a high risk of failure. Franchising, on the other hand, provides a well-established structure that shortens the timeline to profitability. Franchisees benefit from the franchisor’s knowledge and experience in areas such as target market analysis, real estate brokerage, ideal layouts, and national marketing. This support significantly reduces the learning curve and allows franchisees to reach economic stride more quickly. Compared to one-off start-up businesses, franchises have a higher success rate and offer a more efficient path to profitability.
Lower Cash Investment with Higher Cash-on-Cash Return
One of the major advantages of franchising is the lower cash investment required compared to starting a business from scratch. Franchisees are more likely to secure an SBA loan, which only requires a percentage of cash out the door. The remaining balance is typically backed by collateral. This lower cash requirement allows investors to keep their existing assets, such as retirement accounts and stock portfolios, in place, earning a return. The cash flow generated by the franchise then services the loan. This means that the cash-on-cash return for franchisees is likely to be higher compared to starting a business independently.
Valuable and Passable Asset Creation
Investing in a franchise not only provides an opportunity for financial success but also creates a valuable and passable asset. Once a franchise is established and profitable, franchisees have the option to open additional units and staff them with skilled managers. This allows franchisees to become CEOs, overseeing multiple operating units. Over time, franchisees build a highly valuable investment vehicle that can be passed on to future generations. Additionally, franchises are easily sellable assets, and there are brokers who specialize in facilitating the resale of franchises. This makes the process of selling a franchise relatively easy and efficient compared to selling a one-off personal business.
Franchising offers a compelling long-term investment strategy for individuals looking to build wealth in an unstable economy. With the advantages of brand recognition, proven business models, ongoing support, and lower risk, franchising provides a safer and more attractive alternative to traditional investment methods. Industries such as commercial cleaning, food and beverage, and health and wellness have proven to be recession-proof and offer promising growth prospects. By investing in a franchise, individuals can achieve financial independence, enjoy greater freedom and autonomy, and build a valuable asset that can be passed on to future generations. Before making any investment decisions, thorough research and due diligence are essential to ensure the success of the franchise venture.
Reach out to Aaron Bakken at aaron@thefranchiseconsultingcompany.com for more details.
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About Aaron Bakken
Franchise Consultant for The Franchise Consulting Company
Proven Experience
Aaron has 20+ years of franchise and independent business ownership experience. He also spent 5 years as the VP of Franchise Development for an international franchise group, growing the franchise to the advent of a private equity buyout. Whether you are looking to buy a franchise opportunity or franchise your business, Aaron knows how to guide you.
No Cost To You
Aaron is paid by franchisors and development companies for bringing them viable franchise investors. So frankly, his clients have nothing to lose by engaging with him but a bit of their time. Aaron helps his clients navigate the complex world of franchise ownership and development and provides long term guidance to help his clients achieve their entrepreneurship goals.