Understanding Franchising and 4 Franchising Constraints Due to Covid-19

It is undeniable that the notion of franchising as a type of business recommended for beginners has made it able to survive until now. Franchisors as owners have the opportunity to expand the business by recruiting or accepting franchisees in potential locations. Meanwhile, franchisees will not be confused about starting a business because they receive assistance in the form of equipment, materials, and training from the franchisor.

However, franchise is business that cannot be separated from various unexpected risks and impacts. As is experienced now when the world economy is shaky due to the outbreak of the Covid-19 outbreak. Even though the losses incurred are quite large, the franchise business that is being run can bounce back if the franchisor and franchisee know the right strategy.

Franchising constraints during a pandemic

There are at least four challenges facing franchises during a pandemic, including:

1. Reduction of Total Capital

   One of the factors that make a business unable to last long is insufficient or drastically reduced capital. For the franchisor, the amount of capital affects the budget provided to support facilities, business operations, marketing, and other needs related to the franchisee. If cost management is not resolved immediately, franchises that have been built and have survived for years could be threatened with bankruptcy.

2. Arising Doubts from Prospective Franchisees

   The drastic and sudden changes due to the Covid-19 outbreak have indeed surprised many business people. This factor also makes the franchisor confused when he wants to take steps to save the business. Unfortunately, this can make prospective franchisees wonder about the franchisor’s skills. To prevent excessive doubt, convey the real situation to prospective franchisees regarding the obstacles they are facing.

3. Difficulty Opening Branches

   The Covid-19 outbreak has forced the majority of people to choose their priority to survive. In a situation like this, it is possible that prospective franchisees who are already interested in the definition of franchising postpone their plans to open a business because there are other things they need to prioritize. Franchisors who initially want to open branches in certain locations must also find franchisees who are willing to struggle in difficult times.

4. Lay off a number of workers

   To keep operational costs increasingly critical, many franchisors lay off a number of workers, either temporarily or permanently. The reduction in human resources clearly affects the performance of the business managed by the franchisor. In this case, understanding is needed among franchisors, workers, and franchisees to maintain business stability. Do not let any party feel the most disadvantaged due to sudden decision making.

Strategies for Maintaining Franchises in the Middle of Critical Times

Covid-19 does provide uncertainty about the future, including in the economic sector. However, don’t use this possibility as an excuse to give up. You can still maintain the franchise and generate it in the following ways:

• Overhaul Financial Management

  Check whether the balance for reserve or emergency funds can still guarantee the smooth running of operational costs, at least for the next three months. Franchisors can also make savings by cutting salaries, fees, or bonuses in anticipation if the situation worsens. Don’t forget to discuss this with your employee or franchisee before taking such action. Then, consider trends in the market to keep turnover stable or not dropping significantly.

• Change marketing strategy

  Immediately implement new SOPs that follow health protocols from WHO or the government if you don’t want your business to stop for too long. Franchisors may have to spend additional funds to provide health equipment to employees or franchisees, but this step is recommended before embarking on implementing a new marketing strategy. Because now most business people prioritize cleanliness to ensure safety and consumer confidence.

• Providing Education to HR

  Finally, provide valid and up-to-date information to workers regarding the development of the Covid-19 outbreak. This step might spark some anxiety at first, but having something that is easy to understand and convincing will help them understand what the business is going through. Optimize digitization to streamline business using applications and collaborate with service providers to deliver goods.

Hopefully after reading this article, you will not only understand the meaning of franchising, but you will also be prepared to face unexpected situations. So, businesses can still run in the midst of a pandemic.

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