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Should Franchisors Offer Royalty Deferments During the Coronavirus Crisis?

Industry executives weigh in on the responsibility franchise brands have to their franchisees while the timeline for businesses to reopen remains uncertain.

Entrepreneurs often choose to sign a franchise agreement rather than going at it alone because they like knowing that behind their business is the support of a bigger brand. That support and notion of being in business for yourself, but not by yourself, has never been more important.

Due to businesses being forced to temporarily close their doors because of the coronavirus crisis, franchisees are looking for support in all areas of their concepts — including financial. That leaves franchisors wondering whether or not they should offer royalty deferments. 

While arguments can be made on both sides and every franchise is different, Jack Child, founder and president of G-FORCE, believes that offering deferments is the obvious answer.

“We put a pause on all payments of any sorts to franchise group royalties, and our tech/phone fee for the months of March and April,” said Child. “We’re encouraging our franchisees to use this break to entice customers in the future by lowering their prices a little bit. That can help drum up business for them.”

Child also noted that G-FORCE’s franchisees were anticipating that financial break: “We’re a pretty close-knit group, so they know that we look out for each other. Our decision to pause royalty payments didn’t come as a surprise.”

Justin Waltz, vice president of operations for Big Blue Swim School, agrees that franchisees will be turning to franchisors for financial support throughout the coronavirus crisis. And because of the position that franchisors are in compared to franchisees, he believes that brands have the responsibility to help.

“Franchisors have strong resources when it comes to banking relationships,” said Waltz. “Whether it’s a conventional loan, line of credit or relief from the stimulus bill, as franchisors, we have to take the lead on balancing our own finances and deferring royalty payment as an additional level of support.”

Showing franchisees this type of support through royalty deferments allows franchisors to prove through action that they’re in this together as one team.

“Deferring royalty payments is the first step in a franchisor saying, ‘We’re in this with you.’ It allows franchisors to lead by example and establish that they’re doing everything they can to provide franchisees relief,” Waltz said. “Franchisors should also be doing additional things like supporting franchisees who are applying for a loan through the stimulus bill, helping to organize their financials or dispersing information from the IFA, FDA and banks. The more we can communicate to franchisees, the better we’re going to be.”

To put the value of royalty deferments into perspective, Child notes that it’s important to remember what’s happening globally throughout this crisis outside of franchises and businesses. 

“The overriding thing we need to keep in mind is the health and welfare of franchisees and their employees,” he said. “We shouldn’t look to put our financial position ahead of our health.”