Economic Downturn? What Franchisees Can Do Now to Be Ready
Signs over the last few months have shown that an economic downturn may be on the horizon. The federal government’s policies in China are creating imbalances and disconnections in trade and global economic uncertainty. An inverted yield curve in the U.S., unpredictable global flash points, Brexit, and a contentious 2020 U.S. presidential election are all factors contributing to uncertain business conditions and hesitation around intermediate and long-term plans.
With more than 759,000 franchise businesses contributing $451 billion to the U.S. GDP, the franchise sector undoubtedly will be affected by an economic downturn. While many franchise leaders are taking a cautious approach toward the upcoming economic cycle, there are things franchisors, franchisees, and suppliers can do now to better position their business if a downturn does occur.
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 (see feature, page 52).
Use tools to improve employee retention. While one of the positives of an economic downturn typically is reduced turnover, our next downturn may be different as unemployment is currently at a 30-year low. Talented employees may begin looking for new opportunities. To combat this, business owners can use behavioral hiring tools to help ensure they’re hiring the right person for the right position and improving retention. There also are tools and technology available to help maximize employee shift flexibility, reduce overtime, and upgrade staff. The pace of technological change in the franchise and restaurant industry is creating winners and losers. Embrace new ways to hire, retain, and satisfy employees. New technology is enabling smart operators to better manage a challenging labor environment.
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