Why franchising will be 'quite attractive' in 2024: Expert

As 2024 approaches, Nick Powills, Mainland CEO, 1851 Franchise Publisher, and The Melting Pot Board Member, joined Yahoo Finance Live to discuss the ins and outs of the franchising industry. He explains "the franchise industry tends to work opposite that of the economy. So when the economy goes down, franchising goes up," though he cautions not every brand follows the trend.

With "potential turbulence" coming in 2024, Powills sees an opportunity for those interested in franchising to capitalize, as weaker conditions often boost franchise demand. He advises utilizing "your head, your heart, and your gut" in evaluating fit, since "success is ultimately up to you."

While sectors like education and haircare are attractive, Powills argues "the greatest tools" are passion and hustle, as you can fail with any concept without proper work ethic. He stresses that "you have to align your passion with the financial bandwidth that you have," to choose the right investment.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

JULIE HYMAN: Nick, thanks so much for being here. Give us sort of the big-picture view on the franchise industry right now, what kind of growth it has seen, and what kind of people are franchise owners.

NICK POWILLS: So the positive is the franchise industry tends to work opposite that of the economy. So when the economy goes down, franchising goes up. Now, not every brand follows this trend. But for those that do, it opens up opportunities for those looking to get into franchising to actually purchase that brand.

The reason being when there's turbulence in your job, you tend to start looking at alternatives as to how can you build wealth or cover your salary. And therefore, they look into franchising. So as we head into potential turbulence in the early parts of 2024, that's positive. And the other side of that is the presidential election, which creates more turbulence. So for those looking to get into franchising, 2024 will be quite attractive to those that are looking to make a career change.

JOSH LIPTON: And so, Nick, if you're thinking we might hit some turbulence in 2024 economically, are there certain kinds of franchises, Nick, certain sectors that you would think of as more defensive?

NICK POWILLS: Yeah. Let me answer this in a few ways. So first would be your head, your heart, and your gut. For anybody looking at buying a franchise those are your greatest tools that you'll have when evaluating an opportunity, because success is ultimately up to you. When you buy a franchise, you get the framework, and you get to skip ahead and you get to use a operating system that's already in use. So there is positivity in that. And it shortens the timeline it takes to go from a small business to established.

But if you don't put the heart and the hustle and the attitude, the right attitude into any franchise, you're going to fail regardless of what you buy into. Now there are safer segments, like education has been really stable forever. If you look at any list of top franchises, education's always at the top. They talk about recession-resistant or recession-proof ones like haircut brands, where people are still going to get their haircut. Those are interesting.

But really, you have to align with your passions with the financial bandwidth that you have. And then you buy into that type of brand segment. But the only way you're going to get success or the only way you're going to build wealth is if you have that mindset, and you have that grit and hustle and attitude when it goes into franchising.

JULIE HYMAN: Well, and you talked about the financial wherewithal to start-- to buy franchises in the first place, right, which I mentioned at the beginning, there is a range, of course. But it's definitely-- it goes up from 10,000. So you do have to have some funds in the first place to do this.

NICK POWILLS: Yeah. I mean, yes. There are definitely people-- I talked with a franchise owner today who didn't have a significant amount of wealth, bought into a restaurant brand. But the reason they were able to do that is they secured financing through a community bank that they built a relationship with. So there are pathways to build up equity or build up bandwidth to go buy into a franchise.

However, my viewpoint is the rule of three. If you can't afford three of these-- and that's through financing. It doesn't mean you need all the cash. And then like if you're going to buy $1 million investment, you need $3 million in the bank, it just means roughly 20% of that would need $600,000-ish to buy three of them. I'm not saying go buy three tomorrow. But what that does is you put the cash into one, you get unit one open. You're not worried about a rainy day, which you're going to have that in business. And you've stored away some cash so you can scale.

The only way and really the only way you can make money in franchising is if you scale your business and you have multiple locations. If not, you're just replacing your salary, which may be fine, but it's not going to build the wealth that many people want.