Last month, we dove into the chaos of the COVID-19 CoronaVirus outbreak business shutdown and shared some ideas and tips to help franchise business owners. Much has happened in the past few weeks, and now I want to share ideas on taking steps to get ready for what’s next.
These past couple of weeks, much focus has been on government relief programs with the SBA loans and PPP applications with banks and related. Expecting most of that is done and in place, right now, franchise brands are talking to their franchisees about what they can do in this downtime to prepare for the restart and reopening. There’s a possibility some parts of the country will be back up and running in May and June, and you need to be ready for this, and what's next.
Handling Insurance Claims / Denials
Recently, I've seen brands focus on business interruption related insurance claims. I posted last week on social media an article that explained how most insurance companies are going to deny these types of claims, due to the wide-scale impact of the national emergency (of course). I’m not a lawyer, but the legal advice I'm hearing is to go ahead and file the claim, expect your insurance company to deny it, and then be prepared to engage a lawyer to sue on your behalf. The thinking is that there are many different regulations in play, and many and various conditions, as well as varied state and city authorities issued a range of stay at home (or similar) orders, over a range of dates, and other local situations that impacted each city and state differently. Because of this, insurance companies are going to generally begin by denying every claim of this nature, and a good lawyer is ready to push back on these denials for the reasons above (and more). Typically you can negotiate a lawyer to take this type of case on contingency fees, at a probable rate of 30 to 50 %, and they’re willing to represent you through this process, and fight for your claim with the insurance company.
Talk to your franchisor. See what other franchisees in your brand are doing? Do they have the same insurance company, with the same policy levels? Talk to your insurance agent, find a good lawyer? Do a little investigation and collaboration, and see what you have to consider. Might be worth the fight in your case? I’d suggest you check it out, it’s worth a few phone calls for sure. There will be lots of this insurance litigation going on I expect, you won’t be alone...
What to Expect from SBA Loans
With SBA loans, It's going to be complicated when six months click by and then the loans are due to start repayment. A lot of people are expecting that most (up to 75%) of the PPP loan will be forgiven. The program states the terms for partial forgiveness of the loan amount, depending on how it’s spent. From what I'm understanding borrowers can expect the forgiveness to be the amount of money that was used to pay employees..
With that said, suggestions I‘m hearing and offer to you are:
- Keep a separate bank account to track the spending
- Keep meticulous detail in your employee and payroll records
- Be careful to track where, when and how all funds from the total loan proceeds was spent
- Document your decision making process, with the date and reasoning behind your decisions as you make them
I anticipate when the crisis is past, and the loans are due for payment or forgiveness determination, likely the rules and conditions may change. And if they do, you’ll be better prepared if you document your decision making by date and reasoning of what you've done on what day. Have this record so you can address the shifting rules or formulas, and the impact if that happens. If things get ugly, and the bank is pushing back on the forgiveness process, you’ll have the historical information when you need it. After all, banks are not typically in the business of forgiving loans, even 100% backed SBA 1% interest rate loans. My suggestion is that you'd be better to have the historical information even if you never need it, than to not have the information and really wish that you did. Make sure to get and keep your financials in detailed order. Talk to your accountant, talk to your Franchisor, talk with other Franchisees, make sure you’re prepared for what's coming next. I don’t think it's going to be easy or simple to get those loans partially forgiven… you’re dealing with a government program, is anything easy?
Look at This RESTART as an Opportunity, beyond the “pivot”
Some brands are seeing the shutdown as an opportunity. Many have found a way to pivot their operations and offerings to remain in business, some even growing. And If you have the capacity while you're stuck waiting to reopen, search around, look at your competitors and try to figure out who's most likely not to come back. I believe there will be a fair amount of businesses that do not survive this and you want to be the one that does survive it and is positioned to be in a growth mode ready for those opportunities when they present themselves. Maybe it's a nearby independent operator who is unlikely to survive? Maybe they were already in rough shape before the shutdown? Maybe another business in a local shopping center that is a good location for your business, can you take over their space? Talk with the landlord now! Or, maybe it's another franchisee in your brand who is struggling, consider that opportunity you might be able to have an acquisition and become a multi-unit franchisee in your brand? The point is, be prepared to position yourself and your business for growth, and anticipate opportunities in advance so you can take appropriate action.
If you're lucky enough to survive it all and get reopened, what else could you then be prepared for? Think about this so when it does happen, you're not scrambling. Instead, you are preparing now and in advance for a restart and reopen, along with your brand and team and staff ready for these first-time ever type of events. Try to anticipate various “what if” scenarios: the customers and clients may be slow to come back, or maybe there will be a line out your door! Talk to your people and be as prepared as possible.
In summary, as a franchisor or a franchisee, by NOW doing strategic thinking and strategic planning and engaging with the appropriate professionals around you, you’re more likely to jump back into business bigger and better, for everyone involved to benefit - that’s franchising done well!
If all this generates some ideas and questions, and you want to talk more about this and learn more about what I'm talking to my clients about, schedule a call and let's get on the phone. I'm happy to share more with you one-on-one, anytime!