Multi-Unit Franchisee Magazine Issue I, 2013 | Page 62

By Eddy Goldberg

Know When to
Fold ’Em!

N

Closing a unit can be much harder
than opening one

obody likes to admit defeat, especially multi-unit franchisees. But when the overwhelming evidence shows
a unit is bleeding red with no end in sight, it’s time to
surrender to reality and shut it down. But how do you
know when that time has come? And once decided, how do
you proceed unraveling your commitments to your franchisor,
lenders, and suppliers?
In a multi-unit franchisee’s portfolio, one bad apple can
spoil the bunch by dragging down EBIDTA, draining time
and money, and causing all kinds of legal and financial problems—not to mention harming the brand itself and driving
customers away from its “good” units.
In a perfect world, the goal when closing a unit is to minimize the damage to all parties. But with a losing unit, someone usually ends up taking a haircut. (On the other hand,
some operators, as well as private equity firms, thrive on being bottom-feeders, snapping up failing or struggling units at
bargain basement prices.)
We asked people from all sides of the issue for their thoughts
on how to stop the pain, pull the plug, bite the bullet, put the
old dog to sleep. So if you have a dog of a unit chewing up
your bottom line while the rest of your locations are thriving…
Where to begin

“Start with the process of ‘Should I close the unit?’ Take an
objective assessment: Is there any reason I should keep the unit
open?” says Dean Zuccarello, CEO of The Cypress Group.
“Assuming you can navigate through the legal and lender issues, be sure as you’re making the decision to close a unit that
it makes sense to do so,” he
says. “Just because a unit is
losing money doesn’t mean
you should close it. It might
fill a strategic void in your
market.”
He cites a client operating a unit that doesn’t make
money. However, it’s located
in a college town, and keeping that unit open generates
“a fair amount of goodwill
that translates into the rest
of their units,” he says. “The Dean Zuccarello

60

Multi-Unit Franchisee Is s ue I, 2013

unit economics may not work, but if you’re getting other things
out of that unit, like visibility or name recognition, it can make
sense to keep it open,” he says. However, he adds, if you’ve
crossed the bridge of no return and the unit has none of those
redeeming attributes, it makes sense to close it.
“First you have to assess how bad the situation is,” says
Aziz Hashim, who operates 50 units (Domino’s, Popeyes,
and Rally’s) in Georgia, Florida, Arizona, and California.
“Is it making money, breaking even, or losing money?”
And if it is losing money, he
says, your options are to close,
liquidate, or give it back to
the franchisor. It’s not as easy
as you might think.” Who
do you owe? Will the franchisor allow you to close it?
Can you get out of a longterm lease? Are there other
contractual obligations to
consider? Will it affect your
costs with suppliers?
Aziz Hashim
“Sit down with your franchisor, accountant, advisors, and first assess how bad in the hole
you are,” says Hashim. “Then you can move on to try to make
a reasonable decision.” If that decision is to shutter the unit, he
says, your options are three: close, liquidate, or give it back to
the franchisor. “You have to decide which of those options is
best for the