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This a difficult time to be in business

Updated: May 16, 2023

The Covid 19 crisis and resulting lockdown has created a very difficult trading environment for most businesses. In theory, the situation should be less severe for franchisees because they benefit from the support of their franchisor. Sadly that isn’t always the case. 

Most vulnerable are those who pay a fixed monthly fee to operate their business because the franchisor has less incentive to generate sales. We know of one driving instructor franchise that operates this method and has continued to insist on monthly management payments during the lockdown! The franchisor concerned tried to justify this appalling decision by arguing that the franchisees could furlough themselves and receive 80% income from the Government and so franchise payments should continue. 

Other bad behaviour by franchisors includes a failure to offer adequate guidance during the lockdown and a lack of an effective recovery plan. This simply isn’t acceptable and leaves the franchisees of these businesses wondering what they can do. It is clearly the responsibility of the franchisor to adapt the business model to suite the very different trading environment the Corvid 19 has created. A few franchisors have failed to to do this.

What the best course of action is for franchisees in these situations will depend on the type of business and how resilient it is. If the franchise is in the retail or hospitality sectors the problem will naturally be much worse because the entire franchised brand could be at risk. The franchisor could become insolvent and bring down the network. That situation would need to be handled very carefully. If the business is in a less vulnerable sector the franchisor will have more to protect and will be probably respond to firm action by the franchisees. For a few lucky businesses the pandemic will have created opportunities. Effective franchisors have added value for their franchisees. Others will have failed to take advantage of the opportunity. There is a possibility that this type of neglect by a franchisor could be exploited by a franchisee who wanted to terminate their franchise agreement and start their own similar business.

Contrast this dismal picture with how the best franchisors are performing. Many have responded quickly with guidance on how to make successful insurance claims for business interruption. How to claim the maximum available under the various Government schemes and how to deal with employees who may be able to work from home. These franchisors are adding real value to their franchise models and showing proper care and support for their franchisees.

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