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If you’re an existing franchise owner interested in diversifying your portfolio, understanding what this means and accessing important investment tips is an excellent place to start before you invest in a franchise. Playing to your strengths and using your industry knowledge is also important. However, purchasing a franchise that offers diversification from your current investments or employment is just as crucial. That way, you’re not tied to one particular segment or industry in case there is a downturn in one specific sector.
Buying a franchise also gives you plenty of additional support to help establish your business, such as help with branding, marketing, and advertising. This can make it a wise investment because it is typically easier to get off the ground than to start your own business.
Diversifying your franchise portfolio means you aren’t relying on one revenue stream or industry to be successful. Instead, a diversified portfolio means owning multiple franchises in various sectors and locations so that you’re appealing to a broad demographic of customers.
A diversified portfolio can also help strengthen your financial position to meet unexpected market or economic changes. It’s often stated that having a diverse financial portfolio helps to take advantage of opportunities and reduce risks. We can say the same about franchise portfolio diversification.
Strategies to consider for diversifying your portfolio
If you’re considering diversification but aren’t sure where to start, the following steps can help:
Creating a franchise portfolio of brands that don’t compete against one another is an essential strategy. It ensures you’re not competing for the best staff, the best contracts with the same suppliers, or competing in marketing and advertising spending. For example, owning two similar gourmet pizza franchises in the same city means competing for the same customers in the same location. Therefore, it isn’t the best use of your investment dollars.
While you don’t want to compete with your own franchises, there are opportunities in aligned brands. This can be a wise investment choice to leverage your existing knowledge of markets, operations, and target audiences.
For example, if you already own a service franchise, consider another home services franchise that doesn’t directly compete with your existing one. Perhaps it offers a supporting service or need for your customers. You may even wish to consider purchasing a franchise that allows for cross-promotion, such as a lawn care franchise concept and residential cleaning franchise concept where you can promote the new franchise with your current loyal customers. Other examples include building on existing themes, such as adding a fitness concept if you’re already an owner of a health food franchise.
Even across different industries, there can be similarities to look out for in operational models that may make it easier to oversee and manage while maintaining diversification. For example, adding a new franchise with a similar model means you can more easily understand and adapt to new systems. This is especially relevant when considering new technologies that can be implemented across franchises to help streamline operations.
Many people who find long-term success with franchise ownership are passionate about their business, whether it’s the product, service, or company values. So, considering your passions and values can be a respected part of your diversification strategy. Most importantly, though, it’s crucial to assess the numbers. Try to focus on the finances to ensure it’s a sound investment.
Hundreds of opportunities are available, so doing your research is vital. Depending on your risk appetite, it’s wise to look for well-established franchises with solid financial performance and a well-respected leadership team.
You may wish to consider reading franchise magazines, talking to other owners, or attending conferences when you’re looking to add a new brand to your portfolio. Also, look at the development of a brand over time and how it has responded to market changes. Monitoring growth can be an insightful way to determine if the brand is likely to remain relevant and continue to grow in future years–regardless of emerging technology or market changes.
If you already own a single-location franchise, managing it takes time and effort. If you’re the owner-operator, you typically work long hours to ensure it is profitable, so looking for another hands-on franchise isn’t a realistic option. That’s why taking a different approach and considering a semi-absentee franchise for your portfolio is essential.
This type of franchise means you’ll hire a manager to take care of the daily business or look for one that doesn’t require on-site staff. Absentee franchises, such as vending machines, clothing recycling bins, laundromats, or car washes, practically run themselves.
At Pinnacle Franchise Development, we offer a vast range of franchise brands that service various industries. We believe in the benefits of expansion, which can provide you with steady and predictable returns. Franchise growth is also typically less risky than other asset types. Because most are service-based, which many customers rely on, you’re likely to keep customers even in an economic slump–you’re well protected against market volatility.