Franchising During CoViD-19: What is there to know?
Life Maid Easy Team
Franchising During CoViD-19: What is there to know?
Canada is second to the US when it comes to having the largest franchise industry worldwide. In fact, some 45% of the country’s total retail sales are created by franchised businesses. As of the moment, there are 1,200 to 1,300 franchise companies that are operating roughly 76,000 franchise outlets in the country. Despite these figures, many are still uncertain about resuming their search for new franchisees this year.
The commercial and business world will never regain the same footing it had before the coronavirus pandemic started. Practices and habits have changed to conform to the “new normal, one of which is the observance of physical distancing and strict sanitation protocols. This has required businesses to look into their hygiene procedures as well as the protection and sanitation of their employees, customers, and franchise locations.
There are other noticeable changes as well and they include:
– A significant increase in telework, which results in decreasing people in and around office buildings.
– A marked spurt of online commerce due to the adoption of new consumer habits.
– Substantial job losses in all levels and in several sectors.
These have fueled people’s uncertainty on the extent and speed of recovery when it comes to consumer spending, considering that this will not be the same from one industry to another. It will also depend largely on consumers’ discretionary income, which may have decreases during the pandemic. There are also the changes to people’s consumption and patterns of travel.
Even in this environment, it can be seen that some industries including garden centres, home improvement centres, landscaping and gardening businesses and pool shops have already experienced a considerable increase in sales. Meanwhile, large shopping centres, clothing stores, and dining rooms continue to struggle in restoring their sales to pre-pandemic levels.
This type of uncertainty has created a question about whether franchisors should resume or suspend their search for new franchisees. On the other hand, it is also quite possible that the number of franchisees has grown in the past few months. This is mainly because of the job losses, which have prompted people to look into changing careers. This has also been fueled by the increased availability of commercial locations and the sale of franchised businesses.
It follows then that there are opportunities for franchisors to find new franchisees eager to launch new locations. This will inevitably create a chain of progression within its current network. It also helps that there are now a lot of tools out there meant to help out franchisors in their search for franchisees and these include video conferences and virtual franchise shows.
However, even if the future for franchisors seems to be looking up despite the continued uncertainty and even the possibility of another strain of the coronavirus, there is still a need to put some necessary precautions in place.
Ensure Profitability Post-CoViD-19
Franchisors must see to it that their business models are still profitable for franchisees even during the post-coronavirus environment. If not, then a sensible franchisor should make the needed changes that could guarantee the resumption of their business model’s profitability. They should test out these changes before they put them forward to new franchisees.
Some of these modifications could be adding such activities as deliveries and online selling. Regardless of what these adjustments may be, a franchisor should make sure that they already have a proven business model before allowing new franchisees to operate under it.
Implementing all these changes will also call for a review of the franchise agreement’s provisions. It is prudent to look into the stipulations dealing with changes to the concept and business model of the franchise as this will ensure that they have the latitude to make the necessary modifications to sustain the profitability and continuity of its franchised business. This is necessary considering that necessary adjustments may still be needed in coming months of recovery.
Review Financial Forecasts Given to Franchise Candidates
Data that were acquired before the coronavirus pandemic may not be appropriate anymore for the present times. Even the post-reopening data are still questionable because now is not yet the time to make assumptions on the current sales situation of any business. Plus, the true economic impact of the worldwide crises as well as the risk for another wave of the virus is still unknown as of this time.
As it is still too early to make certain pronouncements as of this time, great care must be put in place in preparing any financial forecast that will be made available to any franchise candidate. A cautionary note should be included so new franchisees will be warned about what they are getting into.
Transparency is Very Important
Franchisors should be transparent about the impact of the pandemic on its franchise network as it is their obligation to keep new franchisees apprised of material information before an agreement is signed. Material information is any data that could have an effect on a franchisee’s decision to agree to the contract proposed by the franchisor.
A franchise agreement’s clauses regarding risks related to the business as well as a franchisee’s agreement to these must be reviewed in full to ensure that it is not only complete but also applicable to current situation. It is even appropriate to add a sentence or two, stating in general terms the impact the pandemic has on the franchise network.
Care Should be Taken in Choosing New Franchisees
Now, more than ever, it is very important to be careful about getting new franchisees. This is because, among many things, a new franchisee should be able to accept change and live with risk levels that are higher before the pandemic ever happened. Plus, there is also the possibility that financial institutions may be more stringent in their requirements when it comes to providing loans to new franchisees.
It should also not be overlooked that many franchisors are now adjusting the opening schedules of their new franchises to prepare for the possibility of the second wave of the coronavirus. This means that every action taken towards adding more new fra
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