How Three Franchisees Bounced Back from Floods and Fire
Learn how to invest your IRA or 401k into a franchise penalty-free. ($50k min)
On Saturday, May 1, 2010, a record-breaking rain began to pour down on Middle Tennessee. The two-day storm dumped more than 19 inches of rain on the Nashville area, sending local rivers surging over their banks in what the Army Corps of Engineers now calls a thousand-year flood.
On the third day, Jay Hennessey, owner of a Snap Fitness franchise in Ashland City, got a call from his manager: The Cumberland River had come in for a workout; the gym was filled with 18 inches of water.
Catastrophe is, by definition, unpredictable and unpreventable. When the tornado hits or the gas line bursts, no amount of preparation can protect your business from damage. All you can do is rebuild with whatever you can save.
However, as a franchisee, you have a safety net other entrepreneurs lack: the resources and support of a larger business to assist in your recovery. We asked three franchise owners who faced potentially devastating disasters to tell us what happened, how they bounced back and how their franchisors helped.
A franchisor you can count on
It took several days for the water in the Ashland City Snap Fitness to subside. While Hennessey waited, he contacted both his and his landlord's insurance company. Their response was not ideal.
"From our perspective, there was no reason to have anything like flood insurance," Hennessey says. "We're not in a flood zone, and we expected the owner of the shopping center to be covered for things like that."
The flood had destroyed treadmills and other electronic equipment, damaged weight machines, saturated walls and carpets and deposited a layer of slimy mud throughout the gym. Hennessey estimated it would cost $200,000 to clean, repair and remodel the space.
Without flood insurance, though, he had no ready cash to hire water damage experts. On the other hand, he had a brother-in-law with a contracting company and a landlord willing to let him use a dry, vacant space elsewhere in the same shopping center as a storage facility. He borrowed the contracting crew to move whatever could be salvaged, then to rip up and tear down what was left.
Meanwhile, Hennessey called the Snap Fitness corporate offices for help. "They picked up part of the cost of the clean-up, not with a loan, but with cash to get things done," he says. "It was a decision they made on the fly, and I appreciated it."
His other urgent priority was to let customers know the gym would reopen after renovation. Here, too, Snap Fitness lent its corporate support, letting him use corporate marketing tools such as branded direct mailers and targeted e-mail blasts at no charge to reach current members. He also updated the gym's voice mail and website to reassure customers the closing was only temporary.
Fortunately, Hennessey lost almost no business records. Snap Fitness requires its franchisees to use its online billing, scheduling and gym-management system. In addition, to simplify his financial records and make reporting to the corporate office easier, Hennessey had been using QuickBooks Online. With almost all the gym's data stored on remote servers, those records were safe from the flood.
Another bonus: Hennessey could access the data from his home computer, which let him successfully apply for a $128,000 disaster loan from the U.S. Small Business Administration.
"I understood from the outset that getting the disaster loan was going to involve a lot of paperwork, and I knew the faster I could have the information ready for the SBA, the faster I could get the loan," he says.
Although financial, insurance and property issues forced Hennessey to wait until mid-July to start rebuilding, he says the actual renovations took just three weeks from start to finish. The Ashland City Snap Fitness reopened the first week of August and had recovered all its members within two months. In fact, Hennessey says, the gym is growing.
"We didn't miss a beat," he says. "Snap Fitness did their part in not letting us just flounder."
Supplemental insurance pays off
Chad Patel owns a truck stop in Galesburg, Ill., a small town midway between Peoria, Ill., and Davenport, Iowa. At one point, he leased space in the truck stop to a popular fast-food franchise. When that tenant moved out, though, he decided to take over the space himself. After doing a complete renovation, he opened a Charley's Grilled Subs franchise in March 2008.
Sales the first year were "surprisingly good"--better than the former fast-food tenant had ever done. Then bad luck struck. Mere weeks before his first anniversary as a franchise owner, Patel was awakened at 1:30 a.m. by a phone call from someone yelling about smoke.
When he arrived, the fire department had kept a blaze in Charley's from spreading to the rest of the truck stop building, but the restaurant itself was gutted. Insurance adjusters estimated that Patel sustained roughly $1 million in damage from smoke, water and a fire so hot it melted copper wiring.
He knew he had to rebuild. Galesburg had only a handful of other restaurants, and the truck stop depends as much on locals dropping in as on drivers passing through. Patel told the local newspaper Charley's would reopen as soon as possible.
Then he pulled out the blueprints he'd used a year before, hired the same local contractors and drew up a budget based on the settlements from his, the franchisor's and the compressor company's insurance. The franchisor's corporate coverage settled first, in less than a month, allowing him to cover his initial expenses.
"I was lucky I had good policies that covered business interruption," Patel says. "We were closed for eight months, and I was able to pay my employees the whole time."
Although Charley's Grilled Subs offered him further help in rebuilding, Patel declined most of it, choosing instead to be his own general contractor. Most of his contact with the corporate office involved checking in regularly with the franchisor's construction manager to reassure the company he was rebuilding to franchise specifications, he says.
The truck stop sub shop reopened in November 2009, and the restaurant's business quickly rebounded to pre-fire levels. Though he wishes it had never happened, of course, Patel says the fire proved he was right in one of his most important decisions: choosing an insurance policy to supplement the one offered by the franchisor. In particular, he says, business interruption coverage cost him only about $500 a year, but repaid him many times over by ensuring his employees stuck by him until the reopening rather than finding other jobs.
"If you don't understand the policy, find an agent who can explain it to you," he says. "I know premiums are high, but it's the most important thing you can have."
Franchisee trust pays off
Camille Downes' franchise was destroyed before it ever opened--even before she could move in. Though she's lived in Delaware for more than 30 years, Downes still owns her childhood home in Galveston, Texas, and visits often. Opening a franchise of Flip Flop Shops, a retail store specializing in sandals, was one more reason for her to spend time in her beloved hometown.
She signed a franchise agreement and a letter of intent. She chose a storefront in a 19th century building in the Strand Historic District, less than two blocks from the beach. And she planned to sign the lease on Sept. 14, 2008. But on Sept. 13, Hurricane Ike crashed into Galveston Island.
Even before Ike reached land, water was already splashing over the town's 17-foot seawall. The National Weather Service warned residents of coastal Texas to evacuate or face "certain death." When it hit, Ike became the third most destructive hurricane ever to make landfall in the U.S. Downes still gets teary as she describes the aftermath.
"Everything that was special to us was ruined," she says. "The spot I had picked out was destroyed. It had been under 12 feet of water."
Under the franchise agreement she'd signed in July, Downes had one year to find a location and build it out. Three months had already passed, and with much of the island shredded by wind and water, she thought her contract would probably expire before she could meet its terms. She contacted the president and CEO of Flip Flop Shops and told them she didn't think she could find a second, undamaged location and open for business by the following July.
The corporate office responded with what she considered a remarkably generous proposal: "They offered me a new contract that stated I could open a new shop anywhere in the world, under no time constraints, including right of first refusal for Galveston."
She spent six months scouting locations on the island, but at the end of that time, she reluctantly admitted Galveston was still a long way from full recovery. Instead, she set her sights closer to her current home: downtown Newark, Del., near the campus of the state university.
"There's a main street with tons of college kids, restaurants, boutiques--the same atmosphere I'd chosen in Galveston," Downes says. She opened her Flip Flop Shops franchise there in late November 2009.
Having suffered such devastation before even opening her doors, Downes now believes in preparing for the worst, even though she's not sure what the worst may be. Although she's not in a flood zone, for example, she now has flood insurance, "because everyone is susceptible to flooding, no matter where you live."
While exercising her option to open a Flip Flop Shops location in Galveston isn't in her immediate plans, Downes hasn't ruled it out, if only because she hopes somehow to repay the franchisor's faith in her. "I learned that my trust in this franchise was worth it," she says. "What drew me to them was their philosophy to do the right thing, and they absolutely proved it to me."