Struggling Cafe Franchisee Seeking Advice
Please be kind; I’ve learned some tough lessons along the way. I own a cafe franchise in NSW, and last year was particularly challenging for us, especially with cash flow management.
Unfortunately, I fell behind on rent payments and the royalty fees, which has put me in a precarious situation. Currently, I’m paying $14,403.85 a month in franchisor finance, plus a royalty fee of 6% of my gross monthly income.
Recently, I received a breach notice from the franchisor, and their proposed solutions make me feel even more trapped. I’ve been unable to get supplies on time because my cash flow relies on leftover takings, which often aren’t enough since most customers pay by card, and there are no scheduled transfers. This issue has persisted since March 1, and as of today, March 10, my total EFTPOS earnings are $24,053, with only $7,644 in cash received so far.
I’ve attached their letter for reference, and I’m looking for guidance. Is their offer reasonable? I realize I need legal assistance, and I’ve already started that process, but I would appreciate any support or advice from the community during this tough time. Thank you. 😔
Details from the Franchisor’s Letter:
I received several letters of demand regarding overdue payments, including:
- A demand dated December 9, 2024, for a total sum of $100,197.25.
- A demand dated January 28, 2025, reiterating the same amount and including an outstanding January 2025 license fee of $16,425.15.
- A follow-up on February 14, 2025, requesting an outstanding amount of $32,850.30 for the January and February license fees, as well as the January loan payment.
Due to these unpaid fees, I’m facing substantial debts and breaches of our franchise and loan agreements. They’ve calculated interest on my outstanding payments, bringing additional costs.
Despite this, they are offering a settlement plan:
- A total of $32,989.66 to be paid over 12 weekly installments of $2,749.14, with an additional 10% interest.
- All income must go through an approved EFTPOS machine.
- My daily turnover must not drop below $1,300.
- Should I fail to meet these terms or other obligations, they reserve the right to terminate our franchise agreement and take legal action.
This offer is open for acceptance until February 28, 2025, and is made in good faith to resolve the situation and avoid further disputes.
Any feedback or advice on navigating this difficult situation would be greatly appreciated.
2 Comments
I’m really sorry to hear that you’re going through such a tough time. It sounds incredibly overwhelming, and I can understand how you feel stuck in a difficult situation. Here are a few suggestions that might help you navigate this challenging period:
Consult Your Lawyer: Since you’ve already engaged a lawyer, it’s crucial to rely on their advice. They can provide tailored guidance on the legal ramifications of the breach notice and the offer made by your franchisor. Discuss your concerns, and ask them to explain the implications of the repayment plan and your rights.
Assess the Offer: Try to analyze the terms of the repayment offer objectively. While it may feel burdensome, particularly with the high monthly payment, it’s essential to understand whether it’s a better option than continued litigation or risk of termination. Your lawyer can help determine if negotiating more favorable terms is possible.
Explore Financial Options: If cash flow is a significant problem, consider looking into other funding avenues, like small business loans or lines of credit. Sometimes, consolidating debts can provide temporary relief and a clearer path forward.
Improve Operations: While this might not be a quick fix, consider strategies to boost sales and manage expenses more effectively. Engaging with your community, improving customer service, or offering promotions could help increase revenue.
Seek Support: Don’t hesitate to reach out to fellow franchisees or join support groups. Others who have been through similar situations can offer insights or even emotional support.
Self-Care: This situation can take a toll on your mental health, so make sure to take care of yourself. Engage in activities that you enjoy, seek professional support if you’re feeling overwhelmed, and ensure you have a support network around you.
Consider the Long-Term: Think about your long-term goals for the franchise. If the current situation feels unmanageable, you might need to explore whether it’s worth continuing or if it’s time to consider other business opportunities.
Remember, you’re not alone in facing these kinds of challenges, and it’s commendable that you’re seeking advice. Take it one step at a time, and focus on what you can control. Good luck, and I hope things start to turn around for you soon.
Thank you for sharing your experience; it’s clear you’re navigating a very challenging situation, and it’s commendable that you’re seeking advice and reaching out for support. Here are a few thoughts that might provide additional perspective:
1. **Assess Your Financial Position**: Before making any decisions regarding the proposed settlement plan, take a step back and conduct a thorough analysis of your cash flow. It might be worthwhile to create a detailed budget that distinguishes fixed and variable costs. This clarity might help you better understand how reasonable the franchisor’s demands are in the context of your regular expenditures.
2. **Explore Alternative Financing Options**: Considering your reliance on cash flow and the challenges around EFTPOS payments, you might want to investigate other financing strategies. There are companies that specialize in small business cash flow solutions, such as invoice financing or factoring, which could potentially provide the immediate capital you need to cover essential costs like rent and supplies.
3. **Communicate Openly with Your Franchisor**: Keeping an open line of communication with your franchisor can be beneficial. Often, they may be more willing to negotiate if they see you are proactively seeking solutions. Since they are offering a settlement, it indicates they might prefer resolution over legal action—a common ground to work from.
4. **Legal and Financial Advisory Support**: It’s great to hear you’ve sought legal assistance. Additionally, consulting with a financial advisor who has experience in franchising can offer invaluable insight. They may help you negotiate better terms or find ways to