Bundy Law Firm PLLC March 26, 2020

Over the last few weeks, franchisees across the country have been faced with challenges no one ever imagined. Franchisees operate in some of the hardest hit businesses including fitness, food service, and health and beauty. Whether your business has suffered from a sudden drop in sales, shifted to take out only, or been forced to close, Coronavirus is likely forcing you to ask hard questions about how your franchised business can survive.

Stay Calm-Because franchisees are facing major challenges it may feel very tempting to respond by making major changes to business or financial operations. For example, you might be tempted to give your business a liquidity boost by pulling money from retirement or savings or to dramatically change the services you are offering, a gym switching to online class, for example. However, the decisions you make now could have permanent implications for your business and you, individually. Before you make any major decisions, follow the steps below.

Get Prepared-Find copies of your lease, your franchise agreements, your insurance policies and any other business agreements such as agreements with vendors. Make sure your profit and loss statement is up to date and locate copies of your tax returns for the last few years. Make sure the documents are scanned or available electronically. These documents will be helpful in two ways. One, they will help you understand your options. Two, you may need to send them to your lawyer for legal advice, to government agencies if you are applying for relief, and to your franchisor or landlord if you are requesting help or modifications.

Reach out for Help-Your accountant and your franchise attorney will be able to provide guidance on what your options are. Your franchise agreement and your lease may have a force majeure clause which could excuse your non-performance of some or all of the agreements. However, the specific language of your contracts is important. Additionally, you may have options under contract law or under your insurance policies. Generally, insurance policies and force majeure clauses have notification deadlines, you must act quickly to invoke them.

Develop a Game Plan-Work with your franchise attorney and accountant to develop a game plan. You may be able to free up cash by obtaining a deferral (or forgiveness) of rent, franchise fees or marketing fees and even leases and bank loans. You may be eligible for loans or monetary relief from federal, state or local government.

In the last few weeks, we have seen proactive franchisors and landlords accept significant modifications to franchise agreements and leases such as deferring or reducing royalties and rent payments. Franchisees have options. The franchise lawyers at the Bundy Law Firm are available to help you identify them and move forward. We are here to help.