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Surviving Franchisor Bankruptcy

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Surviving a franchisor's bankruptcy takes immense discipline and fortitude. A little hope can help as well, but mostly you must have a plan to minimize any potential losses in revenue and reputation. A plan will help you avoid disaster and keep your business afloat.

Here are some tips to help you get through a franchise system bankruptcy:

  • Don’t ignore the warning signs. If you hear a rumor, investigate. The last thing you want is to find out the hard way — from a customer or, worse, in the paper. Doing so can compromise your rights and interests. The slightest murmuring of "bankruptcy" should put you on alert. If you determine that the rumor is just that, then continue conducting business as usual. On the other hand, some signs are subtler than others. For instance, if your franchisor continues to collect advertising dollars from you but you're not seeing any advertising, consider that a red flag.
  • Develop a crisis communication plan. Instead of waiting for disaster to happen, create a public relations campaign that includes a crisis communication strategy. A strategy that includes several contingencies will be most effective. Consider the possibility, for instance, that if your franchisor goes bankrupt, customers and the media will wonder if your business is in jeopardy, too. A crisis communication plan will help you quickly craft a response.
  • Stay in touch with the local media. Often, the newspapers and other media go straight to corporate headquarters for information. But that shouldn't deter you from establishing your own relationships with writers, reporters, producers, and news directors. If something should happen, you'll be in a better position to field inquiries.
  • Keep a list of alternative suppliers. Sometimes the first problems occur with suppliers who might be nervous about getting paid. Plus, if the franchisor can't provide supplies, a franchise must look elsewhere. Before you encounter a distributor catastrophe, develop a list of viable and trustworthy suppliers.
  • Maintain a backlog of supplies. If your franchisor declares bankruptcy, it could leave you without an adequate amount of supplies. Avoid this scenario by keeping a surplus of items you might need but cannot obtain in the event of a bankruptcy.
  • Make sure that the community knows that you’re independently owned. You don't need to remind your customers on a daily basis that you're independently owned, but you do need to establish your business as a separate entity from all the other franchises. Letting fellow business owners know is one way to get the word out. Becoming involved in the community is another. The more "local" your business feels the better. Many customers tend to favor locally owned businesses over nationally owned ones.
  • Seek the support of fellow franchisees. It's a competitive world, but helping out your fellow franchisees in times of need could mean the difference between success and failure. Depending upon the distance between you and other franchisees, you might be able to share supplies. The moral support you gain from collaborating will help everyone.
  • Consult a lawyer who specializes in franchising. If your franchisor goes bankrupt, you should consult an attorney who has expertise in franchising. Consider the time and money you put into hiring an expert an investment in your future. A lawyer can tell you what your rights are in a specific situation and help you craft the right business plan to protect your business. As a business owner, you owe yourself nothing less.

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