Multi-Unit Strategies - Prepare For Economic Changes By Keeping Stakeholders In The Loop
Though the U.S. economy has been under the longest expansion period in history, there will come a point where growth slows, and yes, even a recession will return.
Such an economic downturn will undoubtedly affect the more than 759,000 franchise businesses contributing $451 billion to the U.S. GDP. While many franchise leaders are taking a cautious approach toward the upcoming economic cycle, there are things franchisees can do to better position their business for such a downturn.
Investment banker Carty Davis recently wrote about what franchisees can do now to prepare for a turn in the economy. Here's what he says about the importance of communicating with stakeholders:
- Communicate with key financial stakeholders.
Transparency is important, especially during an economic downturn. No one likes surprises. Key financial stakeholders are much more forgiving and willing to be part of a solution if they are aware of problems early. Franchise businesses in need of cash flow relief can look to extend maturities and rework credit facilities to allow for interest-only payments. Now is also a great time to review loans and credit lines for opportunities to adjust pricing, collateral, term, and interest rate protection. Franchisees should communicate with their franchisor if they are at risk of missing development or remodel requirements or defaulting on financial obligations; franchisors may be able to offer temporary relief. Owners should also review their lease portfolio for opportunities to renegotiate leases or have landlords provide tenant improvement dollars for remodel projects. Marginal stores with no likely path to economic sustainability should look to actively renegotiate leases and/or make the hard choice to close the location.
Published: December 31st, 2019
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