5 crucial steps to protect your franchise

You need to protect your franchise. As economic conditions deteriorate and the culture of fear from COVID-19 spikes, Australian franchisors have been sharpening their focus on what they can do to safeguard their businesses financially. 

If not already in place, the following activities (or tips) should be a priority.

Protect your franchise

Tip 1. Get even closer to your franchisee

Franchisees will be relying on their franchisor’s guidance and support more than ever in these difficult times.

The first step is to get to the heart of their key concerns and the changed trading conditions they are experiencing in their individual units. Knowing the full story is a critical pre-requisite to providing effective and customised support.

It also helps with any discussions or collective negotiations you may undertake on their behalf. (Make sure any individual arrangements they may have made or defaulted on with external parties are known).

Difficult conditions create an excellent opportunity to strengthen these relationships. 

Tip 2. Shorten cashflow projections by unit

Cashflow projections for individual units need to be urgently shortened during the COVID-19 and any other crisis. The projected period should be a maximum of 90 days with receipts and expenditures broken down into weekly rather than monthly splits. This initial projection may move around daily as arrangements are achieved with key stakeholders.

Franchisees should not avoid contacting external parties for revised payment terms as they are expecting these calls. With these approaches franchisees should be up front and tell them they are reviewing cashflow forecasts and may need some help. 

It is also important to move quickly on these requests as many small businesses will be requesting these and if left too long allocations may be exhausted or timelines increased.

Collective representation or negotiation by the franchisor (with landlords, suppliers and lenders) may also assist greatly in this process.

Tip 3. Get good advice

The fallout from this crisis has created many additional risks including contract claims, employee entitlement issues, financial obligations and potential insolvency events. 

Franchise lawyers, accountants and other expert advisors can help minimise your risks in these areas.

Just as importantly they can help you better understand and access the numerous concessions, extensions, deferrals and business relief packages flowing into the market. 

Good advice is always important but in this climate it could well save businesses within your network or quite possibly your own.

Tip 4 . Get to lenders early

With cashflow remaining king, sufficient working capital will be a key priority. Experienced and active franchise lenders will be best equipped to provide this advice and support to franchisees and franchisors alike.

Franchisors need to immediately ensure details of who lends to each franchisee is known (especially for marginal units).

They should have their franchisee contact their account manager or (if multiple exposures) check in with head of franchising themselves quickly to:

  • Ensure they have contact details for any concerns
  • Reinforce the brand’s commitment to support franchisees and their lenders
  • Provide full transparency on what is occurring and what is being monitored
  • Outline the broad action plan (what has been done and will be done)
  • Position them that the brand may be seeking some additional support from lenders as part of coming action plans for individual business units
  • Ask if they have a standard consent form that can be signed from impacted franchisees to to assist in any ongoing discussions required.

Tip 5. Prepare for the recovery

Try and stay positive. Your franchisees and their suppliers need your support and composure.

The importance of protecting relationships is critical. 

The goal is to preserve capital and maintain going concern value, so that you can live to fight another day. 

COVID-19 will end, and the operators best positioned stand to benefit greatly when clearer waters emerge.