In the past few recessions, franchises fared well--even thrived--as ex-corporate workers sought more autonomy and personal reward than their previous jobs offered. But this downturn feels markedly different, and prospective franchisees like you are understandably cautious about rushing into a long-term investment.
Many franchisors have noted this difference. Some are responding with press releases that sound almost zealously optimistic, if tinged with fear--proclaiming that their systems are "booming in the slow economy," their industry is "recession resistant" and/or their franchisees are continuing to "do well in these uncertain times." But how much of that is semi-desperate spin and how much is reality?
When you're tapping your precious savings, limited severance packages and restricted access to credit to buy a franchise, you want support, not spin. Thankfully, some franchisors are dishing out more than smooth words--they're providing sharp incentives.
Pet Butler, for one, is cutting its franchise fee by two-thirds, to less than $10,000, and is even accepting credit card payments for the franchise fee. What's more, they've temporarily eliminated the mandatory minimum marketing requirements, which used to be $30,000 in a franchisee's first year and $24,000 each year thereafter. Now, franchisees still have to pay minimum marketing fees, but no longer have to make these additional investments.
According to recent reports, a couple of pizza franchises are also stepping up their game by bringing down their costs. Papa John's has decreased the price of cheese it supplies to franchisees, lowering food costs by 1.4 percent. The franchise has also absorbed higher costs for diesel fuel for food deliveries to franchisees and some commodity costs for dough and other ingredients. It has provided about $4 million of targeted royalty relief and marketing support to franchisees this year. And in another helpful move, Papa John's will lend financial assistance in some cases where underperforming franchise units are transferred to new or existing franchisees. Domino's Pizza, meanwhile, is allowing some of its struggling franchisees to defer payments to the franchisor.
If you're an excellent candidate who doesn't happen to have the savings or credit to buy a franchise, Snap-on Tools may be able to offer you a "gateway" franchise for as little as $17,000 to $25,000. They also offer financing directly through the franchise.
Will more franchisors start decreasing franchise fees and operating costs? Will you see all good franchisors come to the aid of credit-crunched but otherwise qualified and success-driven franchisees? That remains to be seen. In the meantime, as you start your franchise search in this economy, don't just ask what you can do for franchisors--ask what they can do for you.
Entrepreneur.com readers: How did you finance your franchise? In this tight credit market, franchisees have to be more creative than ever in financing their franchise. What is the most creative approach you took to find franchise funding, or what is the most creative financing story you've heard from another franchisee?
E-mail your stories to firstname.lastname@example.org. Then check back to this column; in an upcoming month, we'll reveal the most creative financing stories of the bunch.
Janean Chun is articles editor at Entrepreneur, where she has been covering the franchising beat for more than 15 years. She can be reached at email@example.com.