It is almost impossible not to feel, sense, or hear about the warning signs of an impending bankruptcy in advance of its occurrence. You have to prepare yourself for the worst and make the right decisions so you can continue to operate your business without interruption. Here are some suggestions to put you on the path to independent ownership.
Franchisor Loses Rights to the System
When a franchisor goes bankrupt, the company will likely have to give up the name and allow all the franchisees the option to continue using the name for as long as the business is in operation. Some franchisees may feel that the name can become stained because of the bankruptcy, but that is a decision you have to make.
No More Royalties
All payment terms of the franchise agreement will cease at a time specified in the franchise agreement, usually at the time the franchisor declares bankruptcy. If you sense that trouble is brewing at headquarters and the franchisor continues to collect royalties, you may want to get other franchisees and a lawyer involved to investigate.
Meet With All Suppliers and Other Key Contacts
Now that the business relationship with the franchisor has become severed, the system’s suppliers will soon become your suppliers. You may be forced to open new accounts with each of them which could take time and cause supply and demand problems. Don’t let this happen. Meet with your suppliers right away and discuss your options. They will likely be there to assist with any transitional challenges.
Alert the Local Media
Once a franchisor declares bankruptcy, it will hit the media very quickly and spread across the region or country like wildfire. To avoid getting hit in the crossfire and giving your customers the impression that your franchise is going under, you must develop a public relations strategy to deflect the negative media. This also means you send personalized notices to all your customers and take out advertising that states your position in the franchisor bankruptcy.
Find a Support Network with Other Franchisees
In a time of crisis, your fellow franchisees will want to build solidarity and devise strategies to mitigate the impact that bankruptcy will have on the entire system. Some of the topics that will be addressed are supplier relations, marketing, short term publicity, and of course, legal ramifications that will surface as the crisis reaches its peak.
