When franchisors should step in – without legal liability
Two years of tight credit and reduced consumer spending have left many franchisees reeling and put a serious crimp in franchisors’ royalty streams. Workout professionals and bankruptcy attorneys experienced in franchising discuss what franchisors can do to help turn around distressed units – without spending scarce funds or getting themselves into legal hot water.
“Many franchisees are in debt and need to do a lot of workouts,” says Kevin Burke, managing director at Los Angeles-based Trinity Capital, an investment banking firm that has worked with many franchise brands in restructuring and M&A deals. “They haven’t taken care of their stores, they don’t have a lot of cash or liquidity saved up, and they have to play accounts payable shell games.” And, if they don’t have the money to pay their bills, he asks, where will they find the funds to get professional counsel or an investment banker to help them?
That’s where franchisors come in – in fact, must come in – if they hope to keep their systems strong through the ongoing economic storm, one unit and one operator at a time, and continue to grow their brand. Continue reading.