Franchisee Response to Coronavirus – First Steps & Planning

Franchise Relations

Monday, March 23, 2020; 3pm-4pm

Franchisee Response to Coronavirus – First Steps & Planning

Panelists: Justin Klein / Tom Baber / Tamra Kennedy / Suzanne Beall

Webinar Summary

IFA Franchisee leaders Tamra Kennedy and Tom Baber provided valuable insight into COVID-19 response operations from a franchisee perspective during the “Franchisee Response to Coronavirus – First Steps & Planning” webinar. The panelists stressed the need for good communication within your franchise system, among franchisees, and between employer and employee. The panelists also underscored the franchisee-specific resources IFA would provide in coming days, as well as strategies to cope with liquidity stress and decreased revenue that franchisees are facing amid this public health crisis. IFA lobbyist Suzanne Beall updated participants on legislative strategy ahead of the “Phase 3” stimulus bill being negotiated in Congress, and IFA supplier member Justin Klein offered his guidance on how to ready an action plan with knowledge and resources gained from the provisions of franchise, lease, and development agreements.

Below are key bullet points from the webinar –

  • House, Senate and Administration leadership continue to negotiate over the specifics of a “phase 3” stimulus bill to offset the economic damage caused by COVID-19.
  • The IFA Government Affairs team is focused on asking for a $500 billion loan program that provides relief for small and medium-sized businesses, with franchise-specific language.
  • Franchisees can and should utilize strong communication within their brand system, in their franchisee association, and between employer and employee to leverage knowledge and build trust.
  • Deal with cash flow crunch: explore available tax amnesties; look into utility amnesties to defer payments and increase immediate liquidity; work one-on-one with vendors to extend payment terms; tap into any existing lines of credit, and explore local, regional, and national grant options.
  • Build an action plan: no single party in the chain of the business relationship can bear 100% of the burden. Work to involve all of the parts of the chain – zor, zee, supplier, landlord, banks, creditors – to remain solid.
  • Mobilize your team internally and externally: talk to your employees about their centrality to operations, and talk to outside trusted advisors and franchise system to plot a course through crisis.

Below are the full bullets from the webinar -

  • CARES Act overview – new provisions included in phase 3 stimulus package
  • Franchisee members are expressing the need for liquidity, cash on hand
  • Focused on cash infusion to small and medium sized businesses
  • Federal update
    • Increased political posturing as negotiations continue
    • SBA 7a lending – want members to use existing lenders to get express loans
    • Worked closely with Sen. Rubio’s office to ensure that even large franchisees could apply for express loans; pleased that there is franchise specific language in the CARES Act
      • Program size
      • Multi-unit franchisees
      • House versus Senate
    • Asking for a $500 billion loan program – House Democrats support increasing the loan program to $500 billion (House Small Business committee has sent that number over to Senate)
    • Mood on Capitol Hill is anxious due to Senators testing positive
  • EIDL Funding – loan program open to businesses now; small businesses can apply for disaster loans.
  • Tam Kennedy & Tom Baber – touches on brand communications
    • Inside the brand – Crisis Task Force – including both people inside the brand and on the franchisee side
    • Strong teams at the corporate level, and use and engage with franchisees
    • Zee to Zee sharing platform – own that communication and decide if you want to monitor it over time
    • How are you communicating with your employees?
      • Baber advocates talking to employees about their situation, and being paid and that their family is secure
  • Tam Kennedy
    • Concerned about supply side shortages for her business. Some states have gone to only drive-thru or have closed
    • Recommends Google Chat; Microsoft Teams; any platform where there can be a stream of information and you can view it
  • Members-only microsite where members can talk/chat together and there will be a library of information and resources
    • Ways where franchisees can utilize opportunities for health and social impact
  • Cash Flow Considerations
    • Tax Amnesties
      • Look at county and state business taxes
      • Ex. Iowa has moved with no penalty. She can use escrow account for taxes for ongoing concerns
    • Utility Amnesties
      • Utility accounts are working to defer payments so that you can make payroll
      • Phone, Internet, Gas, Electric, Water
    • Extending vendor terms
      • Paying bills on 45% revenue is not easy. Working with them one-on-one to find the best way to move forward
      • Pushing all of these quarterly plans out to make room for the essentials and keeping people employed
    • Tap into lines of credit
      • Look at mortgage lines of credit – tap into these if you can. Try to negotiate better terms if you can. Reach out to your banker. 2% offers are out there
    • Grants
      • $100 million grant from Facebook. Start at the community level – Chamber of Commerce. Look at state impact spreadsheet. Women, Minority, Generational, Agricultural, Utility grants. Apply for these grants as you manage your day-to-day money
  • Legal considerations – Justin Klein has been exposed to brilliance of guidance for clients and colleagues. What will drive us out of this crisis is good business owners who come up with plans and organize their teams and communities, and systems, to put them into the best possible position and survive during times of duress
    • Action plan – no single party in the chain of the business relationship can bear 100% of the burden (not landlord, banks, franchisees, franchisors, lenders, suppliers – they all have to work in complement). Working to involve all of the parts of the chain to remain solid. “Failure to plan is planning to fail”
    • Know your agreements – want to put oneself in a good situation where business can continue to thrive in partnership with landlord, creditors, others. Know what your franchise agreements, development agreements, covenants with banks.
      • Force majeure
      • Deadline extensions
      • Impossibility of performance
    • Get your team mobilized
      • Internally – talk to your employees about their job security. Talk to your most valuable employees to embolden the good will you have with them and to make them understand how critical they are to your operations
      • Externally – have good legal counsel that is guiding you through this process to understand what your rights are under covenants and agreements. Gaining knowledge to impart that to other operators to get them out of this situation of duress. Work with franchisor and franchisee association and IFA to gather information
  • Tam Kennedy – FMLA and sick leave responsibilities left her “frozen with fear” to pay for these. Does not want to send people to unemployment, but doesn’t have funds to pay these family leave benefits. Put someone on your team to manage donations to food banks.
  • Will SBA loans be available if further stimulus passes?
    • Reach out to legislators to advocate for relief
    • As long as you do not furlough employees, they’ll forgive debt
    • If you apply for SBA disaster relief, you’ll need to gather your paperwork
  • CARES Act has waived restrictions, fees in applying for relief. Ideally you’ll be working with the lender you typically work with
  • Congressional staff doesn’t want businesses to double dip in loan relief funds. Know what’s available to make your decision
  • Use state impact spreadsheet as a resource for state-by-state connections
  • Should I be laying off part-timers? Talk to your employment lawyer about state restrictions – there are implications with dismissing employees beyond payroll
    • Unemployment insurance website – reduction in workforce is different than termination – if you plan to recall them then there is a reduction in workforce facility for businesses
    • You will have to show that you’ve kept your workforce in place to qualify for the relief in the bill
  • Does FMLA apply to hourly employees? Yes it applies to all employees. There will be tools mentioned in the Labor Implications webinar tomorrow. Make sure you’re also compliant with state requirements. Employment Liability Insurance intact – this is insurance for employers that face employment violation claims, so please be aware of this also.