Actively Selling Franchises Is A Luxury Most Franchisors Can’t Afford Right Now

For the last five years, Franchise Grade has supported numerous current and potential stakeholders in franchising ranging from thousands of prospects who’ve purchased franchises to the franchisors, brokers and investment groups that use our services. Since the coronavirus began, we’ve been collecting feedback from our clients and supporting their efforts. I’d like to share some information we’ve received from these groups.

Everyone I’ve spoken with is stoic, and in the face of adversity is working to find ways to push forward. These actions alone speaks volumes about the tenacity of the entrepreneurs around us in franchising and I couldn’t be prouder of my franchise colleagues. But underneath this stoicism is a lingering fear of the uncertainty that this pandemic is bringing.

The business environment is changing rapidly. There’s been a sudden drop in the interest for many franchises, but also an increase in interest for others. Labor shortages, mandated business and institutional closures, supply chain issues, and daily personal concerns are foremost in the minds of most franchisors and franchisees. The need for business survival and the long-term impact of this crisis is starting to weigh heavily on everyone. Newly proposed stimulus packages by the Federal government and their support for businesses and employees will help, and many of us will start focusing on future rebuilding efforts.

A message I’ve constantly heard from franchisors is that new franchise sales are not their current priority. Yes, franchisors are working deals in their pipeline which are close to being completed, and franchise development teams remain focused on staying positive and while still engaging interested prospects. But for many franchisor executives their priority is on finding ways to keep their franchisees healthy and to provide support that will enable their franchisees to survive this crisis.

Client Feedback on Deal Flow

Some franchise deals that were in the late stages of the pipeline are still proceeding and closing. To close some of these deals franchisors are providing concessions to their future franchisees. These concessions can include; flexibility on the hours of operation, reduced royalties during the first year of operation, a right of first refusal on another franchise or flexible financing options. Except for those deals on the verge of closing, the interest and related progress of deals by prospective franchisees has slowed down, which shouldn’t be surprising.

Many prospects and leads that are interacting with us are in a wait and see mode. There remains interest and consideration in franchise investment opportunities but many prospects are NOT taking active steps now to explore and engage franchisors or brokers. Depending on the news of the day, many prospective franchisees can be scared off by the thought, or even suggestion, to proceed to investing in a franchise.

Franchisee Feedback and Sentiment

Both single unit and small multi-unit franchisees are in crisis mode. There is a real pain and visceral impact this crisis is having on franchisees. It’s saddening to hear and watch, as most smaller franchisees, like you and me, are trying to make a better living for their family, are personally attached to all their employees and are facing biggest challenge of their business life. Their feedback has been focused on them trying to stabilize the damage being done to their business, and their future.

Although the larger multi-unit and multi-branded franchisees are feeling the similar financial burdens, they have a longer-term view and even see upcoming opportunities to acquire new locations from struggling operators. This doesn’t mean they are opportunistic sharks hoping others around them fail and they are also worried about their employees and financial future. The difference is – they have confidence their franchised business (in some way) will be around next year. They will have access to capital and can find ways to rebuild their portfolio. This should give franchisors hope.

Franchisor Feedback and Sentiment

Franchisors are hurting. But it’s a slow burn. Some franchisors are struggling to find ways to support their franchisees during this crisis but it’s difficult when some franchisors see no clear path forward. Franchisors are attempting to extend their cash reserves as much as possible to support their franchisees while making sure they do not stretch themselves so thin they’ll jeopardize their entire franchise system and any long-term financial stability. This need to balance multiple priorities is weighing heavily on executives and ownership.

Now is the time most franchisors are starting to review expenditures. Cutting costs and identifying non-essential expenses is needed at this time.

Insincere Stay The Course Messaging

Every business faces struggles during this unprecedented time, Franchise Grade included. However, it would be selfish of me to suggest that our franchisor clients keep paying our monthly marketing services subscription for lead generation.

There may be a tendency on the part of some companies to suggest that franchisors stay the course by maintaining their lead generation activity. Is that a self-serving recommendation since it’s not their money? It’s yours! Right now, staying the course on lead generation efforts may not be the most effective business strategy for some franchisors, and may even anger existing franchisees who are simply struggling to survive. 

Franchisors that are currently struggling to deal with the current crisis should focus on operating as efficiently as possible.

This means reducing cash outflows to preserve the future of your franchise system. This means carefully considering all franchise sales and development dollars; lead generation spend, PR firms, franchise trade shows, SEO firms, and advertising expenditures that are not vital to protecting your existing franchisees, franchisor operations and customers.

For our franchisor clients unsure of what to do, your priority is your existing franchisees and your current franchise system.

Selling a new location today is a luxury you may not be able to afford to do today, or for the next year. This doesn’t mean you’re not a franchisor tomorrow.

The true franchisors are the ones willing to put future sales and development on hold to protect their existing franchisee partners.