This is not a recession like 2008. At that time, the banks threw you under the bus to survive. Now they are stronger and know they must partner with you. So the strategy is different now.

Flexibility and quick learning is the key to surviving. This advice may have a short shelf life because the economic environment and governmental restrictions and aid may change abruptly. Nevertheless, franchisors and franchisees working together provide the best chance for success.

Preserving Liquidity and Looking at Debt-Relief Opportunities

The International Franchise Association is lobbying Congress as it finalizes the CARES Act to recognize the special role that franchised businesses play in the economy and the unique vulnerabilities of franchised businesses. The priorities are small business funding, a business interruption insurance component in the final legislative package and a possible "employment insurance" provision to allow employees furloughed during this crisis to receive unemployment insurance but remain tied to their employers for health coverage among other benefits.

Survival requires close monitoring of relief and assistance packages that are under discussion at all levels of government. Just because it does not pass on the first legislative initiative does not mean wisdom will be ignored on the second legislative event. Provide political support for those who are arguing for your interests before government.

Industry leaders are very vocal in communicating the critical needs of our industry and new legislation will be announced serially in the near future to assist employees in applying for available and ever-changing benefits. For employees you cannot keep, encourage them to apply for unemployment now. You may need them in the future and you want to show them the love, even if you cannot show them the money.

Communication will serve your company best during this ordeal. Have a designated communications spokesperson. Set up phone meetings with the stakeholders, including key customers. Don't keep them guessing or speculating. They may even offer constructive advice.

Reach out to your landlords and vendors now. They are nervous and will accept your call because they know it is coming. They are looking for information from the front lines and want to take your temperature. They want to understand the liquidity of the business and avoid surprises. They want to know predictions and commitments, which are impossible in this environment. Make no commitments but communicate that we all need to work together, and when the fog clears, everyone will be back on track.

Lenders are poised to expect calls about debt relief, so get in line and talk to them early and often. Communications with lenders are a bit more formal than those with landlords and vendors so make sure you work with professionals and rehearse before you communicate. I anticipate that there will be a stampede for debt relief, so make sure you are at the front and one of their favorites for direct, transparent conversations about liquidity. The typical deals available will be to go interest only, but if you need more, ask for more. The banks are strong, money is cheap and plentiful, and the legislation is intended to make everyone whole, so now is the time to ask for more if you need it. The federal government is singing a new tune and wants to be a friend to small business, and the banks are listening.

Put new development, remodeling and other expensive projects on hold. Liquidity will be the key to survival and new facilities will mean little if you cannot exploit these expenditures right now. Same with development agreement obligations. These should be suspended and cash wasters until the business environment improves. Same with utilities and taxes. Likely no shutoffs and no heavy hand enforcement during a crisis. Make sure that you have counsel to navigate the tax issues because you need to negotiate from a position of safety and not cross the line.

Franchise royalties and advertising fees are being deferred or abated by many of the major franchisors. I have heard of total abatement for businesses that have closed by state governmental order, and for those operating on limited scope, like drive-through only, the weekly payment of royalties and advertising have been deferred for as much as 45 days. If you are a franchisor, think in terms of good will and needed liquidity in these hard-hit times. If you are a franchisee, ask for reasonable adjustments. Franchisors that accommodate franchisees will lead the other creditors into making necessary accommodations because they are sharing the risk and the recognition that something should be done. These accommodations are necessary to maximize the likelihood of success after the virus war is over.

Some of the legislations proposed has a business interruption component. That is no substitute for business interruption insurance coverage if you currently have it. Go to your broker and run this down. Usually this is a matter of interpretation and can require lawyering. Same with force majeure clauses in franchise agreements, leases and vendor contracts. These are pattern clauses allowing for contract performances to be suspended or cancelled in the case of war and other forces outside of the parties' control. Particularly for cross-border contracts, these clauses will be the subject of dispute resolution and may ultimately provide the necessary leverage to avoid permanent closures. Contact the lawyers who provide help with these clauses, particularly those with international expertise where most of these clauses are interpreted, even for domestic disputes.

Franchisors should be poised to be proactive in franchisee restructuring. Franchisors can offer to assemble a menu of governmental offerings and lead the way in discussions with key creditors. Franchisors can show how they will partner with key creditors, and maybe even subordinate royalties and advertising on a selected basis to maintain operations at particular sites. Systemwide relief should be considered in connection with workout professions, whether they be lawyers or restructuring advisers.

Franchise companies grow through compassion for the business, customer needs and the franchisees. This compassion is needed more than ever if operations are to survive and ultimately flourish. Perhaps your company should cocoon for the present so that it can come out strong when the coast is clear. Each company will need to choose its best way to survive, maintain and build on brand equity. The companies best positioned for that day and which maintain their compassion will be the post-virus war industry leaders.

Craig R. Tractenberg is a partner and co-chair of the franchise and distribution practice group at Fox Rothschild where he handles complex business disputes involving intellectual property, licenses, business torts and insolvency issues. He focuses his practice on franchise companies' development and expansion. Contact him at [email protected].