How to Respond if Your Franchise Collapses

As a franchisee, there is always the chance that your franchise could collapse due to bankruptcy. If this happens, though, your business doesn't have to collapse too. By taking the appropriate steps and making sure that you understand your legal rights, you may be able to keep your business afloat even if the franchise collapses.

Instructions

Difficulty: Moderately Challenging

Things You’ll Need:

• List of alternate suppliers
• Franchise Lawyer
• Contact information for other franchisees
• Copy of your franchise contract

1. Make an appointment with your lawyer as soon as you learn of the franchise's collapse. Your lawyer can explain the franchise laws in your state as well as your rights once the franchise collapses.
2. Prepare for the collapse by creating a public relations campaign and developing relationships with local reporters, news producers and editors. Keeping your name in the news and maintaining the image of a successful business will help your outlook.
3. Research alternate suppliers to find companies that are passionate about their work, reliable and willing to supply your franchise even through the bankruptcy rumors. Your current supplier may get nervous about your ability to pay and decide to cut their losses sooner rather than later.
4. Spend time in the local community by taking part in fund-raising events and attending meetings. Customers like to do business with locally-owned companies, so it's best to portray yourself as an involved business owner who cares about the community.
5. Keep in contact with other franchisees in your area for advice or to share supplies in the event of an emergency. Although you may view them as competitors, you may actually have more power together than on your own.

Tips & Warnings

• Start preparing for the worst at the first sign of trouble. By getting a head start and researching your options, you'll have the best chance of staying in business after the franchise collapses.
• Know your rights by discussing the potential bankruptcy with your franchise lawyer. If you don't have a franchise lawyer, search for one online (see Resources below) so you have someone to review your contract and help determine the best strategy for protecting your investment.
• Don't depend on your franchise agreement to protect you if the franchise collapses. In most cases, these documents are more concerned with the rights of the franchisor not the franchisee. Chances are, you won't find a clause in your agreement that deals with acquisitions, takeovers, terminations or collapses.