Starting a new business can be rewarding, but when interest rates are uncertain or higher than preferred, borrowing cost fears can make it more difficult for would-be entrepreneurs to take the leap. After all, when rates are unpredictable it’s hard to know when the timing is right to start a business. The reality is that interest rates are one small piece of the business ownership puzzle. Franchises, especially in some industries, can be profitable and thrive even in tough economies or periods of interest rate uncertainty.
Let’s take a closer look at why now is a great time to invest in a franchise business.
5 Reasons Why Franchises Can Be Good Investments Regardless of Current Interest Rates
Owning a franchise can be a good investment, even with rising or changing interest rates. Here are five key reasons why:
- Reduced Investment Risk Compared to Other Ownership Models
- Strong Demand for Essential Services
- Strategic Territory Allocation
- Diversification Opportunities
- Financing Options
1. Reduced Investment Risk
By having proven business models and systems, franchise owners have reduced risk to their investment. In fact, a FranNet study found that 92% of franchises were still in business after two years compared to the 80% of independent small businesses that close after the first year of operation.
This is in part due to the replicable model that allows franchise owners to capitalize on an established brand, operational and marketing support, and expertise from the franchisor that would not otherwise be available to a business owner.
Additionally, franchisors often have experience navigating economic challenges. Franchise owners have the support and resources to increase resilience. However, not all franchise opportunities are the same. Choosing the right fit for you is key to your future success.
The right franchise will offer you the kind of training and support you need to hit the ground running and provide an outlet for any questions and concerns while building your business.
2. Strong Demand for Essential Services
As an entrepreneur, seeing others struggle can make you hesitant. However, not all owners are the same, and not all industries are equally affected by a tough economy.
The home services industry stands out as a strong opportunity during economic shifts. Franchises in this industry can thrive even during a recession. There are several key reasons for this. Recent data reveals that many homeowners are opting to stay put twice as long as they did 20 years ago, and homeowners will always need service professionals to improve, repair, and maintain their homes. A franchise that offers these services will bring a steady stream of customers. Even in tough financial times, people typically prioritize fixing leaky pipes and repairing a broken HVAC system.
3. Strategic Territory Allocation
Local economic conditions can leave a lasting impact on a business. Franchise owners benefit from protected reducing overlap in service areas among fellow owners. This allows for a lower saturation risk of specific services that franchises provide to the area. With clear territories of operation, franchise owners can communicate freely between one another allowing owners to help each other improve and provide helpful feedback with an open channel of communication.
Being able to quickly know what works and reducing trial and error based on other similar businesses can help save time and money and allow you to invest in a strategy that may work better. Being focused on a specific area also allows you to meet local needs and concentrated marketing efforts in a specific area helps meet local needs while giving you the ability to differentiate yourself from competitors.
4. Diversification Opportunities
Franchise businesses in home services are often recession resilient and can offer a range of opportunities for diversification. This means adding different or additional services for your customers, and greater income potential for you.
Investment Diversification
A fundamental principle of investment strategy is investment diversification. A recession-resilient franchise may provide stable cash flow to fuel growth in your business as well as other investment options. This may reduce risk from volatility in your other investments. Franchises offer ownership of a tangible asset that can generate income and free cash flow, which can hedge against more volatile asset classes and the business itself may also appreciate over time. Franchise investments
Diversified Revenue Streams
Many franchise owners provide different services. This diversifies their income. It helps during economic shifts, like rising interest rates. It reduces financial risk. For example, a company that both cleans and tints windows is better off than one offering only one service.
5. Financing Options During Rising Interest Rates
Finally, franchising can ease the financial uncertainty associated with starting a business. This is because with franchising, the upfront investment costs are typically well-defined or can be more accurately estimated in advance compared to start-ups, and this can reduce some of the “fear of the unknown” around a service business. Even if Interest rates are higher at the time of your loan, franchises often have access to financing options that independent startups may not.
In fact, franchises with a history of success are considered more favorably by a lender than starting your own business from scratch. You’ll also find lower-cost franchises that can be home-based, eliminating the costs of a brick-and-mortar storefront. This can make financing your own business a much easier and more accessible process.
Start Planning for Your Future with Neighborly®
Uncertain interest rates are a big reason some entrepreneurs are waiting on the sidelines rather than investing in an opportunity. But many are not factoring in the true opportunity costs of waiting, and their desire to time and target specific borrowing rates may leave them dreaming about, rather than chasing, their goals.
While no business is entirely recession-proof, home services franchises have shown resilience and flexibility even in tough markets. When you choose a Neighborly brand franchise, you are investing in a business with a proven business model and a team of experts ready to help you build and grow a successful business, no matter the economy.
Ready to learn more? Download our free guide, "Recession Planning Your Future" and find out why franchising with Neighborly could be the key to making your business ownership dreams a reality.
