While the start of the New Year was a symbolic refresh for many people, as 2021 is now in full swing, it is clear that things are still far from normal. Spikes in COVID-19 cases are once again triggering new shutdowns and restrictions around the country, and many business owners – franchisees in particular – are struggling as a result. If your franchise is at risk in 2021 due to the effects of the pandemic, what do you need to know? Here are some important insights from franchise lawyer Jeffrey M. Goldstein:
1. Lots of Franchisees are Going to Struggle in 2021
First, if your franchise is struggling, you are not alone. The COVID-19 pandemic has hit the franchise industry particularly hard, as many franchises either: (i) operate out of retail locations that have faced restrictions, (ii) provide products and services that consumers and businesses have cut out of their budgets due to the economic effects of the pandemic, or (iii) are facing both of these challenges simultaneously.
2. Some Franchisors are Offering Grace to Struggling Franchisees
During the pandemic, some franchisors have launched initiatives focused on helping struggling franchisees. These initiatives range from providing loans to deferring royalty fees and cutting other mandatory expenditures. If your franchisor is offering support to franchisees during the pandemic, this may be an option you will want (or need) to consider. However, it will be important for you to read the fine print as well.
3. Financial Relief Programs May Be an Option for You
The U.S. Small Business Administration (SBA) and its state counterparts are offering various financial relief programs to struggling small business owners. Some private organizations are offering loans and grants as well. These programs are in high demand, so you will want to apply promptly if you are in need of financial relief and meet the relevant eligibility criteria.
4. You Probably Don’t Have an Easy Way Out
Unfortunately, as a struggling franchisee, you probably do not have an easy way out. Franchisors typically do not just let struggling franchisees go. You could face liability for both past-due and future royalties (among other costs), and you will likely be subject to strict competitive restrictions post-termination.
5. If Your Franchise Cannot Survive, You Should Consider All Options for Moving Forward
Given the risks of defaulting under your franchise agreement, if you find your franchise struggling in 2021, it will be important for you to consider all of your options for moving forward. Is there a way for you to negotiate a “free” exit? Do you have grounds to pursue arbitration or litigation against your franchisor? To learn more about each of these alternatives (in addition to others), schedule a free and confidential consultation at the Goldstein Law Firm.
Schedule a Free and Confidential Consultation with Franchise Lawyer Jeffrey M. Goldstein
If you would like more options about your options as a struggling franchisee, we encourage you to get in touch. To schedule an appointment with franchise lawyer Jeffrey M. Goldstein, please call 202-293-3947 or inquire online today.
