The current Coronavirus crisis has resulted in a huge amount of uncertainty and nervousness within the franchise
community and the business world at large. If you have a franchise network it has never been more important and relevant for you to communicate with your franchisees.
Kevin Thomas, Lime Licensing and Stephen Thompson, Darwin Gray, will hopefully help you and your franchisees face the difficult journey that lies ahead, and ensure that your business is in a stronger position to meet the new challenges that it will face when the crisis ends.
Carry out a financial assessment
Managing a network requires a solid infrastructure to ensure that your franchisees get the support they need in running their businesses, and that costs. In the first instance you should carry out a financial assessment of your business to include revenue, overheads, cashflow and any reserves you may have. This is really important as “cash is king” and a business will find it extremely difficult to trade without a steady influx of cash. Understanding your financial position will help you plan your short, medium and long term future, and help identify areas that will affect how you manage your network.
Get your franchisees to do the same
It is as important for your franchisees to assess the financial health of their businesses as it is for you. They need to understand how their finances will affect their decision-making process during this uncertain time.
Contact your franchisees and encourage and explain to them the benefits of undertaking a financial assessment of their business. By doing this you are showing them that you care about them and their businesses, which helps build trust between you and your network.
It is highly likely that your franchisees may ask you for help during this period, with the first port of call most likely being the monthly royalty. It may be that they ask you to suspend the fee until the crisis is over, or that you offer a discounted fee. Ultimately the decision is yours to make but always exercise caution before making any such concessions, as you need to maintain a revenue stream from the network to ensure that you can maintain your own business.
Whilst finance is often at the forefront of the minds of most business owners, consider whether there are any other ways in which you can help your network; this will obviously depend on the type of business your network operates. If you do consider a payment freeze or holiday maybe don’t immediately offer it across the board – take each case as it comes. Not everyone will need your help, so why significantly reduce your revenue stream if you don’t need to? Remember to advise those you do help that this is a short term measure and any unpaid royalties will still need to be paid when the crisis is over.
Communication, communication, communication
Franchisees will feel lonely and isolated during this time and may think that they are the only ones with problems. Many franchisors don’t understand the importance of communication, particularly in hard times, thus building a barrier between themselves and their franchisees.
By having regular and positive communication between yourself and the network you can break down the barriers, help ease these feelings and importantly help your franchisees to realise that you are all in this together. Keep your franchisees informed and the lines of communication open. Likewise encourage your franchisees to keep their customers informed of events, as customers need to understand what is happening with their suppliers also.
Franchisees need to know that you are on their side, that you are all pulling in the same direction, and that ultimately you will all emerge stronger for a bright future ahead.
The current Coronavirus crisis has resulted in a huge amount of uncertainty within the franchise community and the business world at large.
This is the second article, co-written by Kevin Thomas, Lime Licensing and Stephen Thompson, Darwin Gray.
If you have a franchise network it has never been more important and relevant for you to consider carefully your position legally. We have outlined below some key considerations when it comes to your contracts and agreements.
Check your force majeure clause
This is a little-known standard contractual clause that, before now, was of no real interest to contracting parties. However, as a result of COVID-19, it is attracting a lot of attention legally.
Most standard franchise agreements, if drafted by a lawyer, will contain a force majeure clause. The basic intention of the clause is to relieve the parties of liability for non-performance in the event of circumstances beyond their control arising e.g. a pandemic.
Generally speaking, force majeure clauses are very narrowly construed by the courts so even slight differences in wording can make a significant difference to how they work in practice. For example, your clause may require your franchise to give notice, meaning that if they fail to do so they may lose any rights under the clause.
It is important that you have your force majeure clause reviewed by a lawyer with experience in franchising. Not only will this ensure that you are prepared for any issues raised by your franchisees, but it will also better inform any practical steps that you may wish to take to help and protect your network.
Be careful not to breach!
Now is not the time to be blasé about your obligations under the franchise agreement or operations manual. Although franchise agreements are usually heavily weighted legally in favour of the franchisor, from time to time, both franchisor and also franchisee will be technically in breach of the terms of the agreement. However, during these difficult times you need to be extra vigilant to ensure that, as much as possible, you adhere strictly to the terms of your franchise agreement and also operations manual.
At a time when relationships between franchisors and their network may become strained because of the effect of COVID-19 measure e.g. lockdown and social distancing, you do not want to give members of your network an opportunity to exit their franchise agreements by alleging a breach by you.
Keep your operations manual up to date
Most franchise agreements allow the franchisor the ability to make changes to the franchise system by amending their operations manual. Therefore, if you either have already or intend to make any changes to alleviate the effect of COVID-19 measures, you need to make sure that you keep your operations manual up to date. You also need to ensure that you make your franchisees aware of the changes.
Ideally send your franchisees a copy of any amended sections of the manual and keep a record of having done so, possibly asking your franchisees to confirm that they have read and understand the changes.
If issues arise with particular franchisees do not hesitate to take advice from a specialist solicitor or other appropriate advisor. By dealing with any issues in a timely manner, you can hopefully avoid them developing into a dispute.