Today's marketplace is highly competitive, and while purchasing a franchise is a great way to open your own business, it does not mean that it will not be difficult. Many franchisees can run into problems in this marketplace, and as a franchisor, you will have to step in and help them to turn it around. Help from the franchisor will be essential for the long-term viability of the franchisee.
Financial and Operational Help
Once you determine that franchisor help is appropriate for a single unit or set of units, then you can determine what kind of help is needed.
- Royalty Deferral or Abatement - This gives the franchisee some wiggle room to get the unit back on its feet. You can decide to just eat the royalties or create a plan for the franchisee to pay you back over time.
- Negotiation with Landlords and Creditors - You may have to get involved in negotiations with landlords and creditors on behalf of your franchisee. Many creditors, landlords and other authorities may refuse the compromise unless the franchisor steps in.
- Take Over Operations - You may also need to take over the operations of the unit. If it is not running efficiently or complying with the franchise agreement, the franchisee may need your help to run the unit.
- Outsouce Help - If you are small franchisor, you can outsource this operational help. There are third-party organizations that can step in and run a unit for you.
Many franchisors provide marketing support for their franchisees. Marketing can boost sales, sales leads to profits and profits get franchisee's out of the hole.
- Allocate More Marketing Funds - If you have struggling franchisees, you can allocate more of your online and offline marketing funds to their region to help them.
- Track Everything - With automated marketing systems, franchisors enjoy more profitable marketing efforts that increase the value of the franchise as a whole, while managing multiple channels simultaneously. This marketing strategy, known as inbound marketing, employs automated systems using micro-websites, blogs, emails and social media to attract local prospects and convert them to customers. This is a great way analyze and track your efforts while you bring new business to a struggling franchise unit.
Are the Struggling Franchise Units Viable?
Whether you're dealing with a single-unit franchisee or one that runs multiple units where a few are struggling, you have to determine the long-term viability of the units in question. Sometimes the best strategy is to sell the unit.
- First, get the financial statements for the struggling unit. These should be prepared or audited by an independent third-party for transparency.
- Conduct a business analysis to see if the unit can become solvent. The franchisee may simply not be able to afford to comply with the franchise agreement. Bankruptcy and sale may be the best options.
- If the units are not viable, you may have to let the franchisee of the hook for some of the obligations of their franchise agreement. For example, if the agreement binds the franchisee to 15 years of royalty payments, you have to release the franchisee from the obligation. When you offer a good exit strategy, the franchisee will be motivated to take it.
You have lots of options when it comes to offering corporate help to a struggling franchisee. Many small franchisors worry about liability when it comes interfering in franchisee operations. If the unit is really struggling and failing, then it's in everyones best intrest for the franchisor to do what ever they can to help. Laws vary by state so, be sure check out the franchisor/franchisee laws in your location to ensure the help you offer is legit.