We understand and appreciate the challenges you’re facing. As a trusted accounting partner to the franchise industry, today we’re sharing three strategies to explore as you assess the state of your business and make plans for your financial future during this crisis.
1. Take Advantage of the Government Bailout: Paycheck Protection Program
The Coronavirus Aid, Relief and Economic Security Act was officially signed into law yesterday, Friday March 27, 2020. Here’s what you need to know:
- The Paycheck Protection Program* included in the law provides 100% federally guaranteed loans to small businesses
- *Though the link above outlines the program in respect to restaurants, all small businesses and non-profits who employ less than 500 people may be eligible
- The loan amount can be as much as two and a half months payroll as calculated by the average monthly payroll payments during the previous 12 months
- Borrowers are eligible for loan forgiveness equal to the sum of payroll costs, rent obligations and utility payments spent by the borrower during an eight-week period after the origination date of the loan.
- Watch out: The loan amount is based on the previous 12 months payroll, but the forgiveness amount is based on payroll during the first eight weeks of the loan
- Luckily, the program can be retroactive to February 15, 2020 allowing you to bring back workers who may have already been laid off
- Update. 4/20/2020: Recently updated FAQs to the Payroll Protection Program clarifies that restaurant companies that are set up as separate legal entities wholly owned by a Parent company are each eligible to apply for separate PPP loans up to a maximum of $10 million per entity (assuming other eligibility requirements are met such as a 72 NAICS Code and less than 500 employees per location). This is particularly good news for consolidated corporate groups that have multiple subsidiaries as well as other organizational structures that involve multiple separate legal entities.
- For more information on the CARE Act and opportunities for your franchise business beyond the Payroll Protection Program, read this summary from the IFA
2. Negotiate Your Retail Lease
It’s important to remember that this crisis is affecting everyone, so landlords are just as anxious about their expenses as business owners are right now. Consider these tips when reaching out to negotiate.
- Be proactive and reach out first
- Landlords appreciate tenants who are more proactive and reach out first. Remember that they need to pay their mortgage — don’t wait until the rent is due to have this conversation.
- Come with a plan. And a backup plan.
- When you’re asking for concessions, be prepared to quantify the reduction in sales you’re experiencing or the loss to your business.
- Provide a timeline and try to be realistic about how much time you actually need.
- Ask them to roll any rent concessions into the next five years and amortize them evenly.
- Most importantly: be willing to compromise.
- Know your leverage
- How important is your business to your landlord? Beyond the lease payment, do you help support a larger shopping center? Are you one of two restaurants or one of 20?
- Part of the $2 trillion bailout helps landlords postpone payments which may give them more ability to help you.
- Remember: it’s typically harder for a landlord to manage a vacancy than it is to negotiate with a current renter.
3. Negotiate with Your Vendors
Just like your landlord, your vendors are also being impacted by this crisis. Implement the same strategies for negotiating with your landlord of being proactive, proposing a reasonable plan and being aware of your leverage. Additionally, be sure to consider:
- A plan that will allow you to maintain supplies
- If your business is still able to operate in some capacity, negotiate a deal with your vendor that allows you to continue receiving critical supplies and services.
- Ask for an extension of 30 days in your payment terms to give you more time to pay the invoice
- A vendor’s business may be directly dependent on
- Your leverage in a vendor relationship might be more co-dependent than a landlord relationship. A landlord can find another retail tenant, but a vendor only has a finite number of businesses they can supply their materials or services to. The length of your partnership and a continued dedication to using their supplies or services could help you negotiate more friendly terms.
Thank you for all you are doing during this difficult time. OnePoint is here for you now and always to provide you with expert franchise accounting. If you have any further questions feel free to reach out to us.
Laura Wright & Diana Mead