“What Can A Franchisor Do In Troubled Times To Help Its Franchisees?”		«BACK
	by Dennis L. Monroe
	from Franchise Times Articles, August 2001 issue

Franchisors are always interested in keeping their system alive and well. In addition, franchisors are required to disclose closed stores and terminated franchises in their UFOC. In light of these concerns, we have seen franchisors' assistance to troubled franchisees in a number of systems. These situations are examples of franchisors that have kept their systems alive and well because of their proactive approach to the franchisee community.

Below are ten ways the franchisor can help troubled franchisees or a troubled franchise system:

1. Franchisors abhor the idea of royalty reductions. Further, franchisors are reluctant to do any kind of advertising payment abatement. Therefore, we would suggest the franchisor look at doing a deferral where the royalty and/or advertisement payment might be due 45 days after the end of the month instead of, for example, 15 days. Obviously this does affect the franchisor's cash flow but may be enough to help the franchisee over some tough cash flow crunches.

2. Provide for a capital improvements loan program. The franchisor provides a straight amortizing loan where money is available to help make necessary capital improvements in the stores or certain upgrades and remodels. In most cases, these improvements will generate higher sales; thus, higher royalties to the franchisor.

3. Be actively involved with the franchisee in their discussions with their creditors. This provides moral assistance to the franchisee regarding their relationship with key creditors and provides lenders with the comfort of franchisor involvement.

4. Vendors may be as interested in keeping the franchise system alive as the franchisor. Key vendors may give cash rebates or program type loans to the franchise community. Recently a supplier provided a system's franchisees approximately $50,000 per store for spruce-up and remodel. This provided needed cash infusions to the franchise community as well as allowing for a spruce-up of the units.

5. The franchisor may look to buy troubled sites from the franchisee. These stores may be purchased and held by the franchisor with funding until the store turns around. The franchisor may allow the franchisee to manage the store and then later refranchise the store.

6. Allow franchisees to terminate closed stores without any kind of payment of liquidated damages or other costs provided in the franchise agreement for termination of stores.

7. Delay the cost of successor franchise agreements. Normally when a franchise expires the franchisor requires a total remodel and a renewal fee. By moving the successor obligations out several years, the franchisor may then have a franchisee who is more viable and able to adequately bear the cost of a successor.

8. The franchisor can provide for liquidity loans in emergency cases where the franchisees can borrow up to a month of operating cash on a swing loan for something in the neighborhood of six to nine months at a low or no interest rate. Again, this may allow the franchisee to make it through a tight cash crunch.

9. The franchisor may provide key advisors to the franchise community (at no cost to the franchise community) to discuss financial issues and ways a franchisee may restructure debt or improve capitalization and cash flow.

10. The franchisor may provide for a key person to be the point person for troubled franchisee situations. This person would be someone who can be an advocate for the franchisee versus an adversary. This approach provides a needed conduit for franchisee help. In general, bankruptcy and the closure of good franchise units are not good solutions for a franchisor. Therefore, cooperation is always the key.