07 Jan Will Business Service Franchises Turn the Corner?
Business service franchises were hard hit during the recession. Will this franchise group make a comeback?
When economic times are bad and businesses, especially small businesses need competent advice, the opposite usually happens. They cut back expenses and are reluctant to use these types of services. Larger companies have the organization and structure where technology and increased productivity can deliver savings. Small businesses tend to operate more hand to mouth and have less opportunity for increasing productivity. It’s difficult for a franchisee that provides consulting services to obtain an engagement with larger companies. As a result, franchisees that provide consulting and business coaching services find it very difficult to land engagements with large or medium size companies and as a result must target smaller businesses. The same can be said for other franchises in the business service sector that includes; advertising and training services, signage production franchises and business coaching and consulting. This result is that these franchises tend to be more directly affected during economic down turns.
A review of business service franchises during the past 3 years found that the 4 major franchise segments, business coaching, consulting, signage and advertising franchises had negative growth of 4%. However, as the economy rebounds there should be improved growth for these franchises. According to Sageworks, which provides software and consulting services to private business, small-business company sales fell 3.8% on average in the first 10 months of 2009 and the trend continued for another 2 years. This hurts business services franchise concepts.
How Small Business Owners React:
- The majority of small business owners react with a survival mentality during hard economic times. Faced with declining revenues and profits most small business owners will reduce marketing activities when the correct approach should be to increase advertising and marketing activities.
- There will be an effort to protect cash flow. This means cutting back on staff and reducing other expenses. Investments in technology and coaching that have the potential to improve operations and increase productivity will be curtailed which is the opposite of what should be done.
- Training programs for the small business staff by third parties will be postponed or cancelled.
- Improvements to plant and equipment will be halted. Franchisees in the signage business can be hard pressed to successfully market their products and services.
The end result is that some franchisees may be forced to reduce their staff and scale back their marketing activities.