Turn it Up in the Down Turn

Bad economy? Forget about it. Why now is a great time to buy a franchise.

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That philosophy helped Boston-based Edible Arrangements franchisee Chris Dellamarggio, 38, tough out the last downturn in 2002. The former market-research executive was the fruit-bouquet company's first franchisee and opened just months before 9/11. Dellamarggio took out a manageable loan against his condo to finance the purchase and kept his expenses low. He paid his two employees hourly and sent them home the minute work finished each day. He also kept up his marketing: During slow times, he sent free bouquets to businesses to keep word-of-mouth going. As the economy turned up again, he expanded and now has four locations doing about $2 million in combined annual sales. "I knew I had to muck through it," he says, "and if I kept getting the product in front of people, I would get there."

Time to Investigate

No one should ever buy a franchise without careful research. In a downturn, though, this step is especially important. You need to find out if your franchisor has the resources to help its franchisees through this difficult time. Rey-nolds recommends asking about services franchisees can tap, such as co-op purchasing, that will drive down operating costs and increase survival odds. Does the franchisor offer affordable software programs, mentoring or business coaching? "Ask them, 'What are you doing to help improve my bottom line?'" says Reynolds.

Each franchisor discloses details about its business in a Franchise Disclosure Document, or FDD, which you should study and use as a starting point for your investigation. From there, research franchise managers' backgrounds and talk with as many franchisees as you can.

Many franchisors won't disclose their earnings or will only offer partial information on franchisee results. So talk with franchisees and ask franchisors direct questions about how the business is faring this year. "They can tell you trends in same-store sales without giving numbers," says Seid. "Are they going up? That's a straight-out fact a franchisor can give you."

New PuroClean franchisee Brian Medaglia, 39, opened his Arlington, Virginia, franchise in July after interviewing franchisees and grilling executives about their ability to manage the chain's growth. He learned the CEO had previous experience running large franchise systems and that a key vice president had spent his entire career in the home-restoration business. "I asked franchisees, 'Are you profitable? Is the system working for you?' and 99.9 percent said yes," says Medaglia. "I could tell the 0.1 percent treading water weren't following the system."

While you're talking with franchisees and the franchisor, get a feel for the corporate culture and think about whether it's a fit for you, advises Lori Kiser-Block, president of franchise consulting firm FranChoice. "A tried-and-true franchisor probably isn't looking for a cowboy entrepreneur," she says. "But new and emerging franchisors are looking for risk-takers, and that ground-floor opportunity with the right franchise can be extremely rewarding."

Also find out the franchisor's expansion plans, says franchise attorney Terrence Dunn. Are they too aggressive? "Often they start encroaching on their own people and cannibalizing their territories," he says. "Even with a good concept, that can leave you struggling."

Another way to research a franchise is to check the price of any units for sale. If the price is lower than the franchise's startup cost, and the franchisee has been working the business for years, something's wrong, Seid notes.

While you're looking over sale prices, consider an existing franchise. During a slowdown, an existing business gives you a leg up: It already has a customer base and some name awareness in its market. "Plus, you can see if customers are happy and business is trending well," says Seid. "You also know what your staff looks like."

Picking the Right Concept

There's no question that generally some types of businesses fare better in a recession than others. Expensive restaurants tend to suffer, but people continue to need haircuts. Still-hot niches our experts identified include products and services tailored to Latinos, as well as child-care, elder-care and home-repair franchises.


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entrepreneurship
franchising
recession