For franchising, franchisors, franchisees, entrepreneurs, and business owners, the COVID-19 Coronavirus and the current global pandemic is altering the course of history and challenges the existence of businesses across the country. While the health of family, friends, and our nation as a whole is the paramount concern, the economic realities of the Corona Virus and its impact on franchisors and franchising must also be addressed

Franchising is the growth engine that supports hundreds of thousands of small businesses across  America. The relationship between franchisors and franchisees is one of interdependence where franchisors supply brand, training, systems, and supply chain, and franchisees supply capital, time, and work effort.

So what’s next –

So, what happens when a pandemic shuts down franchised locations and severely restricts unit level sales? Economic pain and uncertainty! Franchisees face cash flow shortages from declining customer sales and franchisors face cash flow shortages from declining royalties. The interdependence between franchisor and franchisee becomes tested and, at this early stage in the Coronavirus pandemic, franchisees and their Franchise Advisory Councils are:

• reporting declining sales;
• inquiring about policies for closures;
• inquiring about modified cleaning and hygiene policies;
• inquiring about policies for employee paid leave and sick days;
• inquiring about disruptions to supply chains;
• inquiring about cash flow solutions; and
• inquiring about discontinuing or deferring royalty payments.

Many franchisors, depending on their level of capitalization, are faced with the same economic challenges as their franchisees. With potential reductions and restrictions on the receipt of royalty revenues, franchisors are presented with economic challenges related to maintaining franchise sales and the necessary cash flow to support internal operations that now, more than ever, remain critical and necessary for the entire franchise system. How severe these issues are or become will, in large measure, depend on how long this pandemic lasts and the length of time it takes for consumers to come back into the marketplace.

Economic Assistance and Recommendations –

From an economic standpoint, like the 2008 Economic Crisis, economically this challenge will pass. But, what steps should franchisors be taking now to weather this storm and build for a better tomorrow. Below are some recommendations:

1. Remember that this will pass, so stay focused on Q4 and your 2, 3, and 5-year growth plans.
2. Focus on being a good franchisor – it’s times like these that are the reason why many individuals choose to become a franchisee and join your franchise system.
3. Coordinate with your legal team, make sure that your COVID-19 policies and responses to franchisee inquiries are consistent with your franchise agreements and FDD.
4. Maintain active and open communication with your franchisees and Franchise Advisory Council.
5. Understand that a shake-out is happening and your system will be judged by the actions that you take now.
6. Coordinate with your legal team to: (a) Evaluate the force majeure provisions contained in your franchise agreement and evaluate the potential application to the current crisis – such as whether or not your force majeure provision permits franchisees to terminate their franchise agreements or claim royalty deferrals; (b) Evaluate emergency updates to your operations manual to permit modified franchisee operations and potential alternative approved suppliers and sources of supply; (c) Make sure that your Coronavirus COVID-19 policies and responses to franchisee inquiries are consistent with your franchise agreements and FDD; (d) Closely monitor your supply chain and plan for supply disruptions and cancellations; and (e) Depending on your industry, evaluate your response to the potentially inevitable franchisee requests to suspend or defer royalties.
7. Implement and communicate enhanced franchise procedures to maintain customer safety.
8. Closely monitor franchisee metrics, including sales, and costs of goods sold. These metrics will provide important indicators and, when we exit this crisis, will be important data to isolate and evaluate for future Item 19 financial performance representations.
9. Stay focused on your brand story and what you are doing to help your franchisees.
10. Set the panic aside, focus on the future of your franchise system, the well-being of your franchisees and customers.

Focus on the long-term. The interdependent relationship that makes the franchisor-franchisee relationship so valuable is the exact feature and characteristic that now makes it vulnerable to this crisis. Now is the time to rally around your franchisees and emerge from this tragedy better and stronger. Focus on what your franchise system will look like in 2020 Q4 and 2021.

Most important, stay safe! See updates and webinar info below:

UPDATES: In an effort to keep the franchise community updated as we all work to solutions to navigate this pandemic, we will be continuously updating this post.

Legislative Updates on Coronavirus and Franchising:

• Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020 – (Updated March 17, 2020) On March 6, 2020 President Trump signed into law the Coronavirus Preparedness and Response Supplemental Appropriations Act (“CPRSAA”) . The Act provides $8.3 billion in emergency funding to government agencies, including the Small Business Administration (“SBA”). For the franchise community – franchisors, franchisee’s and all small businesses – the significance of this act is the supplemental funding that it provides to the SBA will be used by the SBA to provide Disaster Assistance Loans to Businesses Impacted by Coronavirus. For qualifying businesses these loans will charges an interest rate of 3.75%/ Depending on the location of your business, your state Governor must make a disaster relief declaration with the SBA. The following link is to the SBA Disaster Assistance in Response to Coronavirus page. Franchise Industry Perspective: In our opinion state governors need to make the appropriate declarations so that all small businesses can access these loans. While this assistance is a good start much more is needed – as the government bails out big banks and Wall Street much more is needed for Main Street!!

• Families First Coronavirus Response Act – (Updated March 17, 2020) On Saturday March 14, 2020 The US House of Representatives passed the Families First Coronavirus Response Act. This legislation is currently pending and is not yet law. What will or will not end up in the final legislation is fluid and changing by the hour. The focus of this legislation, in one form or another will be paid family leave and supplemental rights and benefits for employees. This pending legislation will apply  to small and midsize businesses and we expect certain exemptions for businesses with less than 50 employees. Franchise Industry Perspective: Like many things in Washington and with politicians this legislation sounds great in practice, has a great name (“Families First…”) but, in practice will damage and harm the small businesses (including franchisors and franchisees) across America! Small businesses are losing revenue by the second and there will be no cash flow to pay these enhanced “benefits”. Ironically (unlike politicians) myself and all small business care about our employees and team members and our focus goes far beyond 2 weeks – our focus is on long-term growth and employment. In addition to “Families First” legislation America needs “Small Business First” legislation.

Helpful Links on Coronavirus and Franchising:

• SBA Coronavirus Disaster Relief Information – This link is to the Small Business Administrations page about Coronavirus disaster relief loans for small businesses. The page includes information about these Economic Injury Disaster Loans and their eligibility on a state and county basis.
• SBA Coronavirus Disaster Relief Loan Application – This link is to the Small Business Administration and includes a link and information to apply for a SBA loan.

SBA Small Business Guidance for Coronavirus – This link is to a helpful resource page published by the Small Business Administration. It includes loan information and helpful information for small business owners, including the implementation of COVID-19 policies and procedures for sick employees.