Americans are notoriously innovative and tough. Not only are we able to get work done but we have also kept the economy moving forward during times when most financial analysts expect a downturn due to financial strain. From pushing through the worst of the pandemic to navigating supply chain disruptions due to global conflict, entrepreneurs throughout the country continue to push through the worst and build strong businesses.
Even so, it is important to remember everyone has a tipping point. Add current high inflation rates to these continued struggles and we are starting to see a negative impact on businesses with a drop in consumer spending. Financial experts are pointing to multiple red flags that signal this drop could be significant – and even some of the most stable businesses like well known franchises are starting to feel the impact.
Which franchises are facing financial strain?
Those that focus on trends or one-time experience offerings are already reporting financial strain. In contrast, those that offer essential needs and receive support from franchisors will likely continue to find success in 2026 and beyond. When it comes to essential needs, think franchises that focus on education, food and health care needs as well as home services like plumbing and HVAC.
During times of uncertainty, consumers often prefer to return to businesses that provide predictable products. This can position franchises for success even as the market shifts.
Do franchisors owe franchisees aid during a recession?
As consumers cut back on spending, franchisees might wonder if franchisors will help them weather tough financial times. The answer varies depending on the language within the franchise agreement. Some franchise agreements offer support while others may not. In fact, some may even set the franchisor up for continued financial gain even when the franchisee reports no profit. This is because these agreements may be worded to allow the franchisor to receive royalties. This generally does not take profits into account but is instead based on percentage of gross sales.
Franchisees that find themselves struggling during a recession or other financial difficulties have options. In addition to reviewing the language of the franchise agreement it can also help to negotiate with the franchisor. In some cases, the following remedies may be available:
- Deferred royalties
- Temporary reduction of fees
- Marketing adjustments
- Negotiations with suppliers
Inadequate support from franchisors can devastate franchisees. Careful review of the franchise agreement and strategic negotiations can offer relief and a path forward. Franchisees that find themselves working through these types of issues are wise to reach out to legal counsel with experience in this complicated area of law. Our attorneys offer free consultations to help provide guidance during these difficult times.
