While the rising inflation in the United States has impacted all types of businesses, it has hit many franchisees particularly hard. Not only are many franchises retail businesses that rely on consumers’ discretionary income, but franchisees’ royalty and advertising fund obligations limit their profitability as well.
In other words, if your franchise is struggling due to inflation in 2022, you are not alone.
But, while this may provide some consolation, it does nothing to get you out of your situation. So, what options do you have available?
What Are Your Options if Inflation is Hurting Your Franchise?
Unfortunately, as a franchisee, your options may be somewhat limited. While independent business owners can take any measures they deem necessary, franchisees must continue to operate within the confines of their franchise systems. Not only that but for franchisees, struggling due to inflation is also a double-edged sword: On the one hand, continuing to run your business could add to your losses. On the other, closing your business could put you in default of your franchise agreement and expose you to substantial liability.
This is a difficult situation, and there is no one right answer. Depending on your unique circumstances, your options may include:
- Seeking Additional Financing – If you think that your franchise could weather the storm with an infusion of capital, then seeking additional financing could be an option. Of course, this option is risky, and if your franchise doesn’t survive, you will be even further in debt.
- Reducing Your Expenses – Can you keep your franchise afloat by reducing your expenses? While no one likes to let their employees go, if conducting layoffs means saving your franchise, then this could be your best option. You can see if you can cut other expenses as well.
- Negotiating with Your Franchisor – If your franchise is underperforming, this is also a problem for your franchisor. In this scenario, you may or may not have leverage depending on the circumstances involved. If you have any leverage at all, you may be able to negotiate a temporary reprieve from royalty payments or advertising fund contributions, the ability to purchase supplies from non-designated vendors (which may offer better pricing), or various other concessions that will improve your short-term cash flow.
- Selling Your Franchise – Another option may be to sell your franchise. Speculative investors may be willing to take on the risk of buying your struggling business, believing that they will be able to reverse its fortunes.
- Suing Your Franchisor – Finally, if you have grounds to do so, you may be able to get out of your franchise by suing your franchisor. Franchisees can pursue lawsuits against franchisors on various grounds, and even if you don’t end up taking your case to court, asserting your legal rights could provide the leverage you need to exit the system without penalty.
Speak with Franchise Attorney Jeffrey M. Goldstein About Your Options
Is your franchise struggling due to inflation? If so, we invite you to schedule a free consultation at the Goldstein Law Firm to discuss the options you have available. To speak with attorney Jeffrey M. Goldstein in confidence, please call 202-293-3947 or request an appointment online today.
