If you are like me, you may be crawling out of 2020 but see a light on the horizon ahead.
I am actually quite optimistic about 2021, especially as a small business owner and investor. I am so optimistic that I actually made a new business investment in September. Things are looking up, and there are opportunities in places not considered in the past.
With that sentiment in mind, here are four thoughts for franchise investment strategies in 2021.
- Take What the Market Gives You
As a business owner for more than 20 years, one thing I’ve learned is that the market constantly evolves, and it’s important to be sensing opportunities this evolution creates.
This is particularly true in a year like 2020 – when the market was turbulent.
So, what is the market giving us today? For one, we’re seeing dramatically better than expected deals on retail lease rates. Many struggling businesses – particularly bars & restaurants – occupy prime retail locations. As some have shuttered, landlords are left with open spaces.
What happens when supply is greater than demand? Prices go down until the market equalizes. So, as a franchise owner, this is your opportunity to secure long-term leases at very advantageous prices. This offers a terrific long-term cost advantage in the business that will feed profitability for years to come.
- Play for the Long-Term
Franchise candidates sometimes ask me for the “hottest” franchise opportunity. I often shy away from these opportunities because these brands can be fickle. Some are here today and gone tomorrow. My advice is to think about sustainability. Focus on businesses which will do well through good and bad times.
These sustainable businesses are sometimes considered “boring”. But don’t be put off by that. Remember that franchises offering basic services – painting, pool maintenance, haircuts, accounting services, window cleaning and other basic, recurring services – are REALLY GOOD BUSINESSES. These are franchise brands that often have long-term track records of successful owners in great and bad economic cycles.
- Lower Investment + Generous Margins = Spectacular ROI
Last year, a notable trend I saw in my franchise candidates was a dramatic pivot toward lower investment, service-based businesses instead of fixed retail, brick & mortar operations. This change happened very quickly last Spring, but I think it will be long-lasting.
Why? I can speak from personal experience. Many of the service-based franchise brands offer market leading financial return on investment. The scenario is simple to understand:
Combine (1) lower initial investment requirements with (2) lower ongoing overhead expenses and (3) generous margin structure to compete in (4) fragmented and (5) recession-resilient industries. (note to making this formula a graphic)
THAT is a formula for success. And, I would know because I own two businesses that fit this formula!
It does not take a fortune to make money in franchising.
- Pick Quality Leadership
Even though my first three recommendations are important, this one is BY FAR the most important. Please, please, please – invest in franchise opportunities that have strong senior leadership teams. It will pave the way toward a better future.
Now, allow me to be clear about what I mean when I say ‘strong leadership teams’. It does not mean the longest tenured CEO. This does not mean the largest franchise system. When you meet franchise leadership, two items should be obvious to you: (1) They are equally committed to your success, and (2) They have tied their success directly to your success.
At a franchise conference that I recently attended, I was struck by the notable strong out-performance during 2020 from companies with strong senior leadership teams. Those companies led successfully at a time when it was needed most. They took strong action to help franchise owners financially and operationally prepare for the future. They built alternative methods for franchise owners to generate revenue. They waived fees and eased the financial burden.
Is it time to own a franchise company? We have a new market now and there are certainly plenty of opportunities to seize in it. Know the right financial formula, pick the right leadership, and make your decisions for long-term success. Let me know about your journey!