Even in the best of times, franchisors of everything from restaurants to auto-body shops have little insight into how well or how poorly their franchisees are doing. But in a downturn, the risks of working in the dark are multiplied: There can be a cumulative effect as franchisees across the network struggle for survival. Franchise failures can hurt the brand, scare off potential new franchisees and end up in costly litigation. For their part, franchisees may worry that their franchises could be pulled if they get behind in royalty payments. Based on our experience, both parties opt to ignore the possibility of franchisee distress until it's too late.
Why do it?
A franchise health check-up, performed with the full participation of franchisees, provides a holistic view of everything from operating metrics to capital structure. One company that recently conducted such a check-up was able to help almost all of its at-risk franchisees develop strategies to weather the storm. Despite franchisees' requests for relief that totaled many millions of dollars, the franchisor invested less than 5 percent of that sum to save almost all of its troubled franchises.