We are experiencing a global health crisis, the likes of which our generation has never seen. Normal life has come to a halt to stop the spread of the coronavirus and protect those who are most susceptible. Businesses and individuals alike are beginning to gauge the true impact of the coronavirus pandemic—it’s not strictly a health issue anymore. COVID-19, or the coronavirus, will affect everyone in many facets of their lives. 

The economy is hurting. Business owners are scared about not being able to stay in business. Franchisors and franchisees alike are worried about what the future holds.

It’s important to take action now to ensure survival once we reach the other end. Our hope is to help you understand exactly what this crisis means for you and your business. 

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The Situation

Schools are canceled, unemployment is skyrocketing, travel is restricted, and states are issuing shelter-in-place orders. It’s an unprecedented response to combat the spread of COVID-19. In the United States, New York City has been hit the hardest. Hospitals are seeing surges of patients and some have devoted themselves exclusively to COVID-19 treatment.

CDC has issued the following recommendations during the outbreak:

  1. Community mitigation strategy
  2. What to do if you are sick
  3. How to protect yourself

What does all this have to do with franchising? According to an NFIB Research Center Survey released March 13, 2020, 55% of small businesses, including franchised businesses, expect to be directly affected by the outbreak. They will feel this impact in the form of fewer sales, supply chain disruptions, staffing challenges, increased demands for cleanliness and safety, and forced closures.

Proposed Actions

The Senate just passed a $2 trillion stimulus package to include a government lending program and $350 billion for federal small business loans. Currently, self-employed are not eligible for unemployment, but these criteria may be changing soon.

The International Franchise Association, or IFA, is pushing for a $300 billion fund to help franchisees stay afloat during times of closure and uncertainty. Without such help, significant jobs could be lost in the franchise sector due to mass closings. The restaurant franchise sector, in particular, is taking a hard hit.

The IFA is also providing access to federal and state resources to aid franchises, including  Economic Injury Disaster Loans (EIDL) and the CARES Act. Read more about IFA resources for franchises.

The Families First Coronavirus Relief Act has the potential to benefit small business employees by mandating paid leave. This could, however, be a devastating blow to small businesses if not combined with financial help.

The IFA is calling for:

  • Unsecured business loans to provide businesses with the cash to pay their workers, rent, and other costs during this crisis
  • Suspending business return filing and the payment of business taxes to the federal government
  • Amending the Tax Code to help small businesses

The U.S. Small Business Administrations also announced $2 million in small business loans with a low-interest rate during these trying times.

Be Prepared

It’s important to have a proactive response plan to combat the coronavirus’s impact on business. For franchisors, this means open communication, alternative supply chains, and enhanced cleaning and safety protocols. During this time, you may be required to be flexible with deadlines, offerings, and travel requirements.

You may also choose to help support your franchisees with adjusting staffing in response to social distancing guidelines (while you can offer guidance, be sure not to mandate or control any specific staffing requirements).

Rather than taking drastic measures, we should be taking proactive, well-planned measures to maintain business continuity. If you have a crisis management plan, be sure to assess its effectiveness and make note of any changes that would help things run more smoothly. 

If you don’t already have such a plan, now would be an ideal time to start putting one together. Nothing will tell you what you need to do during a crisis more than an actual crisis. Be sure to keep records of challenges that arise and how they are resolved. Since the current timeframe of the effects of the coronavirus outbreak on the market is yet unknown, we need to plan for a worst-case scenario.

“Worst case scenario,” might trigger some intense feelings, but this, too, shall pass! The best thing we can do to support franchisees and their employees is to prepare for the worst but remain optimistic as the situation unfolds.

The Force Majeure Clause of the Franchise Agreement may include language that allows certain delays, such as time frame to open during extenuating circumstances. The Franchise Agreement should also specify who is responsible for covering costs of supply chain interruptions and coordinating alternative suppliers.

Business interruption insurance may cover certain expenses, such as site decontamination and crisis management efforts. You will need to reference your specific policy to see what does and does not qualify.

Learn more about how the franchise landscape will likely change:

  1. How the franchise industry is changing
  2. Updates to franchise legislation

Support Your Franchisees

Take this opportunity to examine your business model and if there is anything you can change to better prepare for crises in the future. If your business is recession-resistant, now is the time to put that claim to the test. Once immediate needs are taken care of, make alterations to your business operations process that will increase its sturdiness during market downturns.

Don’t neglect your franchisees- most of them are understandably nervous about the economic impact of the virus. By ensuring that you meet their immediate needs and take them through your crisis plan, you can maintain franchisee faith and goodwill. You will need the support of your franchise community to continue to grow your brand (either now or post-COVID-19), and keeping up morale will help us all through these tough times.

Here are a few resources that you can offer to your franchisees to help them out:

  1. Guidance for businesses and employers
  2. Coronavirus (COVID-19): Small Business Guidance & Loan Resources
  3. U.S. Chamber of Commerce Guidance for employers to plan and respond to the Coronavirus

Keep Going!

Coronavirus impact on business

Social distancing guidelines do seem to be having an impact on the spread of the virus—but we can’t lessen our efforts now. Thousands of Americans are still facing this deadly illness, and health care workers are working around the clock to get us through the COVID-19 pandemic.

According to Yahoo Finance, franchises that adapt to the evolving situation are setting themselves up for a quick recovery once regular business operations resume. By having a plan of action, you are that much closer to recovering and keeping your company alive and well.

Most importantly, keep washing your hands and practicing social distancing whenever possible! Let’s not undo the sacrifice we are making or undermine the effort to keep everyone healthy and safe.

Stay up to date on how the coronavirus continues to affect the franchising industry. Subscribe to our blog for more updates and advice on getting through this pandemic together.

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