Shelley Bosio opened up her small donut shop in Littleton, Colorado, in May for the first time since closing in late March. Donuts are not typically a high volume delivery item that can be sold through UberEats, so delivery was not going to work for her business. During the first two weeks of the shutdown in March, she offered takeout service, but there was little traffic. With the morning rush all but halted due to the shutdown, here business fell off 90%. She was losing money by staying open. Shelley made the hard decision that many business owners faced…to shut down completely.
Before COVID-19, Shelley and I had been doing some financial modeling and strategy work around whether it would be a good idea to franchise her business. Fast forward to May, Shelley posed a question to me that I have heard from many other franchisors – “Is anyone really going to buy a franchise in this climate?”
Very little is the same now as it was a few months ago. According to the U.S. Department of Labor, more than 30 million people filed for unemployment benefits from mid-March through the end of April. That represents approximately 18.6% of the nation’s workforce.
Despite the current state of the economy, there are positive signs for those in franchising. However, for concepts to capitalize, they must be planning and positioning themselves now. In this article, we’ll walk through advantages that franchises have during recessions, a quick case study, and some actionable items for your franchise brand today.
While the unemployment figures can be terrifying, they can also be a harbinger for growth. Recessions in the past have led to an increase in franchising for three reasons.
First, when people are employed at high wage jobs, they are generally reluctant to leap into business ownership. However, with more of those people no longer tied to their high paying jobs, their risk profile changes. Many start to wonder if now is the time to start looking at entrepreneurship. Many of these same people may now have severance or other termination payments to help them afford down payments on new businesses.
A second advantage franchises have is that government programs are generally put in place to help jump-start the economy during recessions. Because of this, there are often incentives from federal and local governments for aspiring business owners. Some of these incentives spread to lending institutions that are encouraged by the Small Business Administration (SBA) to help prospective business owners. For instance, during COVID-19, the SBA has relaxed lending requirements as well as increased the amount of funding that can be obtained quickly.
And lastly, aspiring entrepreneurs are looking for ways to reduce risks and start-up costs. One way to reduce upfront costs is to work with franchises that can demonstrate a long operating history and efficiencies in the start-up process. Too many franchisors don’t give themselves credit when it comes to these traits. Most of the initial operating costs for opening a franchise would be needed to open up any business. However, most well-tuned franchisors actually can save money on the initial opening process because they have fined tuned material costs and design concepts.
Data from Franchise Insights supports the idea that prospective franchisors are still interested in moving forward. In a survey, only 19.2% indicated they would be putting off their plans for starting a new business.
Case Study – Dickey’s Barbeque
Dickey’s Barbeque, the Texas-style barbecue brand, added its 100th new store to the development pipeline with the execution of a new development agreement in April and continued to expand its franchise family with the addition of new agreements throughout May and June. These new agreements were in many markets that the brand hasn’t been to before. Franchise growth would seem counterintuitive to what is going on in the market.
However, Dickey’s took a two-pronged strategy during this time.
First, the brand also attracted potential franchisees with a 90-day signing incentive package for those who signed up for a new store for the first time throughout the entire month of April.
Next, the brand went to work supporting existing franchisees with new and updated reporting, abating royalties, and further development of their mobile platforms. These tactics help lead to an increase of 105% in online ordering. Unlike many concepts, Dickey’s was able to get their franchisees up and running on a platform.
Dickey’s was able to use this time wisely and move quickly because of the clear strategy and planning they had done ahead of time. Dickey’s has always been well organized, and it paid off for their franchisees during COVID-19.
Actionable Items for Franchisors
Our banking system is still stable and the same financial assistance remains in place from banks and the SBA. Nothing has changed with the due diligence process, either.
Franchisors that will succeed will have addressed the issues COVID-19 has brought. This means finding ways to identify customers and connect with them. It could include researching and educating prospects on potential financing and incentive programs available. Thinking through finance and start-up costs strategies will show prospects you know what you are doing. And lastly, aligning the organization with a common strategy will help you determine the next steps to grow.
The last several months have been a difficult time for all business owners. We know this crisis will come to an end and bring a return to normalcy, but we don’t know when. The opportunity for franchisors is there, but they must have the right team and strategy in place to move forward.
My name is Matt Krieger, and I am the founder of Krieger Analytics, a CFO advisory partner for small businesses and franchisors. I am also the owner and franchisor of a concept called Monkey Bizness, in Denver, Colorado.
As a small business owner with a background in finance and strategy, I realized the benefits that a CFO could bring to smaller organizations. Most franchisors and small business owners don’t have a need (or budget) for a full-time CFO. To better fit my clients, Krieger Analytics is a part-time resource. While most think of CFO’s being involved in finance and accounting (we are), I am also involved in much more. I partner with my clients by coaching them on strategy, gaining clarity on their business, building efficient and effective processes, and making confident business decisions. Conversations are free, so don’t hesitate to reach out to me at firstname.lastname@example.org.