News Items

last updated 22/04/2020

Helping franchisees #5 – the Banker’s View

last updated 22/04/2020

Westpac’s Franchise Team has been working with franchisors and franchisees throughout New Zealand to find practical solutions to the cashflow crisis caused by Covid-19

Daniel Cloete, National Franchise Manager of Westpac

Westpac has the largest and oldest specialist franchise division of any bank in New Zealand. It is led by Daniel Cloete, a very experienced franchise banker who is a straight-talker with a vast amount of knowledge of the various different franchise models currently operating in this country. He has recently been made a Life Member of the Franchise Association of New Zealand.

Daniel, thanks for your call -  ­we know how busy you must be right now as people get to grips with the totally unexpected and work out what they need to do.

1. Businesses of all kinds have come to a halt in this lockdown, and it looks like a slow road back to normality. Do you think that franchising is generally in a good position to recover?

That would depend on the individual franchise system as well as the industry in which it operates. Some franchisors have a very strong model and are well-resourced. They have a lot of experience and history. A recession is probably inevitable coming out of the Covid-19 crisis, but these franchises have been through it before and learned – and remembered – the lessons. Other franchises are perhaps not as robust.

Some industries will take a lot longer to recover and that will have a knock-on effect on spending for everyone. On the other hand, there will be a lot of pent-up demand, and some sectors will do well from that.

2. So it’s not just about the industries but the individual brands within each industry? McDonald’s sound quite positive about bouncing back, but Burger King has already gone into receivership.

McDonald’s has a strong parent and the many individual franchisees have constantly re-invested in their restaurants and offerings over recent years. The strong support from the franchisor (who is also the landlord in many cases), and the different suppliers, put the group in a very different position when it comes to recovery from the lockdown.

3. What are wise franchisors and franchisees doing from a financial point of view at the moment to secure their futures?

To manage cash flow immediately, businesses are going ‘interest only’ for 3 months on business loans, which tend to be shorter term: 3-5 year term loans, with high capital repayments. Where they have personal debt (mortgages), they are choosing to defer interest payments, and sometimes principal too, for 6 months to help them address cash flow issues.

On top of that they may have used temporary overdrafts to cover operating expenses and as an immediate source of funds to support very short-term cashflow needs and cover operating expenses. As the franchises look at what it takes to reopen and operate under the limitations of different levels, they may also look at accessing the Business Finance Guarantee Scheme (Westpac Business Support Loans). This is designed to help viable businesses meet urgent liquidity and bridging financing requirements due to disruption caused by Covid-19.  

The largest impact on their cashflow tends to be Wages and Rent, but there are also a lot of other expenses that need to be addressed through careful cashflow management. As a bank, our primary focus at the moment is on supporting our existing customers through their cash flow issues. It’s an economic version of ‘flattening the curve’, helping businesses to spread the pain over a longer period rather than suffer a fatal shock.

4. How are franchisors helping their franchisees with their finances?

In many cases, franchisors can be instrumental in advising their franchisees, as they understand the model and the cashflow requirements well and can share information through suggestions, conference calls, industry information, etc. They can also help through deferred/cancelled fees, assistance with applying for subsidies, coaching, budgeting, cashflow planning and helping with checklists to support operating at different levels.

Because many systems operate on a percentage of turnover royalty model, they share directly in the pain when outlets are shut down and will be highly motivated to assist franchisees as much as they can to get operational again.

Franchise systems where there has been a culture of freely sharing financial information will be in a better position to help. Online accounting with common charts of accounts is also a positive.

5. What has Westpac’s franchise division been doing during the lockdown to help?

We have technologically fully-enabled franchise managers working remotely around the country. They spent the first two weeks of lockdown constantly on the phone, talking to franchisors and their franchisee customers in person, sharing information and helping to find solutions. Similarly, our Small Business Centre has been processing a large volume of requests to support business customers with cashflow issues.

It’s where being part of a franchise can really pay off for small business owners – they have the same issues and because we understand their business model, we can help offer suggestions. We’ve been invited to talk on a lot of conference calls with franchisors and their franchisees, and it’s about giving them the facts, pointing out what’s available and the implications of each option (together with their accountant). There’s also been a lot of systemisation going on within franchise groups to help, say, make loans faster and easier to arrange.

6. Sadly, and despite the support from franchisors and Government, there will inevitably be some franchisee businesses that do not survive the lockdown –­ perhaps including some fairly new outlets. Will finance be available for new purchasers to take over those businesses, and what do you think franchisors and bankers might be able to offer to help both the outgoing and incoming franchisee?

Right now, our focus is on supporting our existing clients, not growth, but that time will come and yes, there will be plenty of opportunities out there – including, as you say, some good businesses which failed to survive simply through unfortunate timing. We know that many franchises have strong and robust business models, and will have no issue funding them when the time is right.

7. So what would be your top three tips for franchisors and franchisees right now?

1) Franchisors should look at joining the regular Zoom meetings run by FANZ which share positive actions that franchisors are taking to help franchisees and prepare them for re-opening. Find more info on these here.

2) Work closely with your accountant and banker to determine and meet the business’s financial needs in the coming months. Do not borrow any more money to support non-viable businesses, as this can seriously impact the equity position of families owning small businesses. See Help for Business Customers

3) There are a number of government assistance schemes as well as some excellent lessons to share from other franchisees and franchisors. Make use of all of these.

Thanks, Daniel, some valuable advice there and it’s good to get a wider perspective on what’s going on. How do you think we’re going to get through this?

This is a very different situation from the GFC, where liquidity was the issue; it’s all about cashflow and banks are in a good position to support their customers through this time. The Government and the banking sector have been working together closely in order to support viable and sustainable businesses through the Covid-19 crisis.

Franchisors can play a large role as well in supporting franchisees, and franchisees should work closely with their financial and other advisors and their bank to manage their business's cash flow and lending needs.

Franchisors helping franchisees – case studies

More info

Read a summary with links of where to get up-to-date and accurate information about the relief available for businesses here.

Franchise Accountants has prepared a resource which outlines how employers treat the Wage Subsidy and related matters. This guide answers a lot of questions and covers off some practical examples and tips. Download your copy of the guide here.

Note: the Franchise Association of New Zealand is hosting a series of 45-minute Virtual Meetings via Zoom for all interested franchisors and/or their staff on the topic Positive Actions Franchisors Are Taking. These are open to non-member franchisors – to be invited, email


Order a Print Copy
Order a Print Copy