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Franchisor goes Bankrupt – What can a Franchisee Do ?

December 20, 2008


While covering Rosebys last week, we had told that we come up with our thoughts on how to deal with Franchisors going bankrupt.

Until 2007 it was common for the Franchisee to go bankrupt and the Franchisor would steer the struggling business associate to safe ground. However, in 2008, the situation is a lot different. Many big Franchisers like 7-Eleven, Baker’s Square, Burger Chef’s etc have been struggling or have become insolvent.

The situation will be alarming when your Franchiser is sinking. Franchisees in the short-run will believe that they no more have to pay royalties and have total control over operations. However, they are stripped of their protective umbrella – supply chain and logistics, marketing, business support and branding.

Well the Franchisees can get together [very essential] and can take actions on three sides – inputs, operations and market or demand side of the business. Necessary legal steps should be taken. Suppliers may lose confidence and back out of business due to payment worries, lose economies of scale and becomes increasingly difficult to serve smaller number / individual Franchisees at competitive costs. the only solution is Franchisees should form a strategic alliance and assure suppliers of Min volumes of business they can generate.

Smooth conduct of day-to-day business is the second responsibility. Employees morale would be low and should be given a dose of confidence and always motivated. Remember, Customers first and do your best to serve them without any deterioration. A backup plan for uninterrupted operations is a must.

Lastly, Franchisees should see to it that demand does not dwindle due to reasons such as consumers’ fears or lowered quality, diverted attention due to competition and interruptions in operations. Maintain contact with potential and current customers by necessary campaigns. If Franchiser is unable to be back in business, then it becomes essential as a Franchisee to publicize that your business is independently owned and operated.

As a Franchisee, don’t wait until the last minute to form a network or association for exchange of information with fellow business associates.

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