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Dear Franny (Guests Post Questions Here)
Dear Franny Answers Franchisee Operational Questions
This forum has been created so that guests and members can write to Dear Franny about franchisee operational issues and questions. Dear Franny is a panel of franchise experts and thought leaders who are selected by the editor to answer questions. And then, of course, our members and guests are free to post remarks.
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Huntington Learning Center and Banco Popular SBA fraud
Did any of the Huntington Learning Centers franchisees file a lawsuit? All the available reports mention that SBA rebuked Banco Popular Bank for approving the SBA loans. What happens to the franchisees? They are the one, who took the blow.
Rocky Mountain Chocolate Factory
Dear Blue MauMau,
I am currently researching a story on Franchising in general and Rocky Mountain Chocolate Factory in detail. As we dont have such a huge franchise-culture in germany I found this wounderful homepage. We are currently developing a similar concept in germany. So I thought about getting Franchisees and more important - former franchisees on the telephone to get an impression what can go wrong with a chocolate franchise.
Is there any possibility to get a former Rocky Mountain Chocolate Franchisee "on the line"? Are there any "horror storys" like Cold Stone Creamery?
all the best from Germany
Mathias
Find Exit strategy and limit of personal guarantee
It does not matter which franchise you consider. Always find out what is the exit plan for the franchisee and if there is personal guarantee. If there is no exit plan and you give personal guarantee, you will pay Royalty from your salary even if the franchise business is closed. You will need to declare personal bankruptcy (lose everything) to get out of that. Speaking from first hand experience and the franchise was Discovery Point.
Point of Sale Systems
Is it more advantageous to have a POS system that is all in one, such as a PC in a box using non propriety hardware such as HP, or is it better to have hardware that is made for POS like NCR, Fujitsu or Micron. What are the pros and cons that other franchises have encountered in either scenario (for ongoing support, cost, adaptability to technology changes).
territory encroachment
I am sure that a neighboring franchise has encroached my territory and has reaped over 100k of my business. this was done with the approval of the national office. I would like to hear your opinion on how likely it is to get the non-encroachment policy in my contracted enforced>
Are they or aren't they?
forced sez: "I am sure that a neighboring franchise has encroached my territory ..."
You have a defined geographic territory? How are the borders defined? Are the new guys INSIDE your defined territory or not? If they are inside, sounds like you'd have a case. If they are merely nearby, it doesn't matter if they draw business from your territory, they're not INSIDE it.
I have never heard of a FA that defines a geographic territory and then says that nobody else can open a store outside the territory that draws business from that territory. It's only that no other store will open inside that territory.
Buying a business
Here is my situation. Stay at home mom looking to purchase a business. I have no prior business experience. My goal is to purchase one and expand to more units when possible. I am interested in resale service business. Can you point me to some names for direction? I live in San Diego. In terms of expandability, is franchising my best option? Thanks. Also appreciate referals of local brokers.
talk about
Guest says: "Stay at home mom looking to purchase a business. I have no prior business experience. My goal is to purchase one and expand to more units when possible. "
Talk about wanting to run before you can walk! No business experience and already talking about expansion. Make sure you can run the first one, first.
My recommendation is that you
My recommendation is that you start your own business instead of buying an existing one unless that business is extreemly successful and you are extreemly wealthy.
Be careful about franchise
Unfortunately franchise system has become the modern day slavery. You pay to become the slave. You will sign all kinds of contracts and will not be able to get out without losing everything. You will not have much left for yourself after paying them. There are exceptions, but we have several friends that have suffered so much with franchises. Since you do not have prior business experience, franchiser will exploit you to the maximum. If you read about the Matco tools, learning centers, and Discovery Point as discussed in this forum, you will realize that franchise is no better than independent business and can be worse. Some franchises require small amount of initial funding and others need a huge sum of money. They will be nice before you sign the contract and give you a rosy picture verbally and nothing in writing. After you get in, you will find that franchises are not there to help. Actually they benefit if you fail because they buy your business back at fraction of the original price that they sold it to you. They will let you sign that they will be first in-line to buy it back.
If the business is profitable and it has a proven business model of a franchise, why is it for sale?
Jan-Pro Franchise
Is Jan-Pro Janitorial a reputable company in which to purchase a franchise?
Is selling dry cleaning services considered being a franchisee?
I looked at several dry cleaning franchises that are route oriented. In reading the franchise agreement the franchisor owns the account base. I would have to go out and prospect to get the route customers(out of my own pocket.) After getting the business I would have to service the customer by picking-up and delivering their orders. After delivery, I would have to collect for services rendered, pay for vehicle maintenance, and pay the dry cleaner. Meanwhile the franchisor collects a royalty on every dry cleaning transaction regardless of when or if I get paid. Also, if the dry cleaner messes up, and I have to make good for the customer, the franchisor still gets their cut.
In my years of business, I have have never heard of anything so perverse or unethical to where I have to go out and establish my own following, but the following is actually owned by the franchisor.
Why does the franchisor have that in the agreement, and is this negotiable to take out.
Thank you,
Phil Weisberger
Franchisers are not good anymore
The Franchise concept was good when it started. It made sense to come up with a business idea or product and share the profit with others, who put the effort. But now franchise world is full of businesses that do not have anything of their own except for the contract. As you have pointed out, there is no responsibility or expense for the franchiser, they do not deliver anything, there is no product or process of their own. but they want a cut when you will be doing all the work. Save yourself, do not sign contract. Easy to get in, nearly impossible to get out.
Matco Tools and TD bank helped to issue bad SBA loans
This is very similar to other SBA loans where franchiser provided inflated projections and banks took it knowing that they are not taking any risks. SBA covers the losses with taxpayers' money.
"two Matco franchisees filed a class action lawsuit against Matco Tools and TD Bank in the United States District Court for the District of New Jersey. The plaintiffs are a father and son duo who each owned a Matco Tools franchise. The plaintiffs allege that Matco Tools and TD Bank “in a loan fraud scheme to encourage unsophisticated borrowers to enter into risky business loans to buy Matco Tools franchises.” According to the plaintiffs, the “scheme enabled Matco to sell more franchises and TD Bank to make risky loans without concern” because the “bank knew if the loans failed, the loans would ultimately be repaid by the United States taxpayers through the SBA guaranteed loan program.”
http://franchiselawblog.net/wp-content/uploads/2011/12/COMPLAINT.pdf
http://franchiselawblog.net/?p=221
Discovery Point Franchising Failures do not get reported
Discovery Point franchising had several centers go bankrupt since 2007, but the SBA report or FDD does not list any failures. Upon inquiry, the franchise corporate replied that corporate picked those businesses up right before their owners went bankrupt. Is this not bending the rules? New franchisees will not be able to judge the system correctly if this process goes on. Do all franchises follow this type of manipulation?
What the heck is a Discovery Point
Guest gripes that: "Discovery Point franchising had several centers go bankrupt since 2007, but the SBA report or FDD does not list any failures. Upon inquiry, the franchise corporate replied that corporate picked those businesses up right before their owners went bankrupt."
If someone, anyone, paid off the SBA loan then how would is show up on an SBA report? The loan was paid. SBA would report unpaid (charged off) loans, not that an owner lost money on the business.
If someone, anyone took over a store/center, it wouldn't be a closed location. Someone who is specifically a franchise attorney (I'm an attorney who owns franchises, not a franchise attorney) can answer if it is some kind of requirement to show units the franchisor has taken over. Otherwise I'm not seeing how it is wrong for a business (in this case the franchisor) to act in its own best interests.
What Guests posts is confusing. WHAT ENTITY went backrupt, the business or the owner?
Discovery Point is a childcare franchise
The Franchise Disclosure Document (FDD) needs to disclose the centers that failed so that future franchisees can evaluate the business model. This is the intention of FTC. Franchisor hiding the failed centers by a ownership name change appears to be fraudulent. Discovery Point sells the childcare building and equipment package (nearly $2.8M), the business comes for free. The business as well as the owner went bankrupt and Discovery point bought the real estate from the bankruptcy court (for $1M) and then resold again with SBA guarantee. FDD showed all is going well. It is surprising to find that SBA follows the FDD and not the unpaid loan records.
Closed or Terminated Franchises
Must be listed in Item 20 of the FDD whether or not the franchiser takes them over.
Neither Closed nor Terminated
DP corporate said, the franchise business was handed over and it was done for free. So, the childcare center was not closed and the franchise agreement was not terminated. I am sure the previous owner did not have much clue what was going on - this franchise is running simply on these legal manipulations.
Closed, Transferred and Terminated...
All of these must be listed in Item 20 of the FDD. This is not optional end of story
Re: Closed, Transferred and Terminated
Tell the state regulators about the wrong information in the FDD. They'll inform the franchisor that the zor must fill in 3 years of closed, transferred and terminated stores in Item 20. If the franchisor refuses to comply and the state somehow knows that they are cheating, the state may deregister the franchise brand so that they cannot sell new franchises in the state.
As for you, well, sad to hear that you got bum information. Maybe you'll be more careful next time in your due diligence in trusting the franchise disclosure document too much.
Not closed or terminated but transferred?
First Guest apparently wants to see the location listed as Closed. Or maybe Terminated would satisfy him. What if it's listed as Transferred?
BTW, $2.8 million for a day care? That's a lot of money for building & equipment; so what if the "business is free". Why can't someone buy or lease an existing building and obtain their own equipment without involving thses folks, and still have their business "free". What is so special (or patented) about their buildings that a local architect couldn't reverse engineer one with the same function????
Building and Equipment at Cost - not really
You have correctly pointed out that unless it is marked as closed or terminated, it does not raise a flag. Transferred means someone else bought it and there is no problem in the system. Do not underestimate the marketing tricks that are in place. Most of the franchisees are professionals with College Degrees. They are cautious and saved for years from their salary to have their own business some day. They had been convinced to put in everything they had - so there is something.
It is a lot of money for a day care and the profit projections were given as $20K+/month return on that investment. Franchisers are childless husband and wife, and they behaved as Mom and Pop, before the purchase, to the franchisees, who are mostly young families with small children. That nice behavior then quickly changed when the franchisees found how they were wronged. The building and equipment were told to be provided at the true cost. It was specifically mentioned (verbally, but to several franchisees) that Discovery Point did not make any profit from those real estate and equipment transactions. It was twisting the truth, because these transactions were not provided by Discovery Point (DP), but by the owners of Discovery Point as different corporations - Westair, Dialex, etc. It was also presented as- a particular center was at a great location and unless the franchisee decided in a week or two, it would be gone to the next one waiting in line. DP makes about $700K+ profit from the sale of each new center.
The SBA loan officer was also a part of this. She supported the financial projections given by DP and claimed to be involved with DP financing for a long time. She also mentioned, normally a franchisee refinanced the center in 3 years with cash out to get the initial investment of $300K back - according to her everyone was doing it. Later this SBA loan officer was hired by DP for about a year and most likely compensated for her support for DP.
There have been about 6 bankruptcies recently and from the FDD you will not be able to figure that out. Other centers are struggling and normally this is how it works - husband works a full time job to pay the bills and wife works at the DP center without salary (many times 12 hour days) to keep the DP center running- their own children are neglected because there is no time - franchisees work in the weekends to fix real estate and equipment- there is no money to pay repairmen. As you can guess, most franchisees had put in everything they had in this venture, signed all kinds of obligations and release forms, and have no way of getting out. Many franchisees have drawn from their retirement accounts and are really trapped/ruined for life. DP continues to claim that there is no problem with the system. Interestingly, DP owners have no child of their own but have become childcare franchisers. There is no patent or anything special about the business except that the royalty is fixed at about $5000/month - whether you have any income or not. So, Discovery Point keeps on earning that royalty till the center fails. Once it fails, DP buys the center back from bankruptcy court (TN center was bought back for $1M) and sells that again. DP also arranges $200K in operating money - lent at a floor of 10% interest from that $700K+ profit to the franchisee so that franchisee can keep the center up for some time and does not raise a SBA red flag for a quick failure.
Sell My Franchise
Do have or know of a vehicle for selling my franchise. I own a Coverall Cleaning (Commercial) franchise free and clear. I would like to sell it. Only asking $20,000 which includes ownership transfer. It covers the Chicagoland area.
Listing your franchise to sell
There are brokers that help sell businesses. BizBuySell.com is the largest online service to post a business sale. There are others.
Mr. Bean may not want it but there probably is someone out there that will be interested.
One problem is that Coverall may decide it doesn't like your buyer.
Janitorial
Guest says: "Mr. Bean may not want it but there probably is someone out there that will be interested."
Yes, somebody may want it, thus proving P.T. Barnum was right. Evidently you two have not read the numerous comments on janitorial franchises in general, and the court decision against Coverall saying that a franchisee was an employee and the franchise was an excuse for Coverall to pay him less than minimum wage.
Google on "Coverall ruling employee" and it should come up. (I'd like to see the Original Poster's P&L, maybe he does have one that's worth $20k, but that would be an exception.)
Coverall? ROTFLMAO!
Guest says: " I own a Coverall Cleaning (Commercial) franchise free and clear. I would like to sell it. Only asking $20,000 which includes ownership transfer."
Oh man oh man, I guess this poor schmuck hasn't been reading BMM legal news....
Twenty grand to buy one's self a below minimum wage job?
But he owns it free & clear!
Franchisor strategy
Hi, I am a franchisee that has seen their franchisor go from "Love ya, need ya and need you to be successful" to you will do these mandatory things that profit us and cost you or else we will make you.
They have now erected their own distribution companies between us and the original suppliers and are deteriorating our net profit on a yearly basis. My question is how far do these people go and what can realistically be done since the one immortal line in our franchise agreements say that it is mandatory that any dispute be handled by an arbitor of their choosing and there will be no class or group actions?
Also, since almost all franchisors belong to the IFA and smooze with the same consultants, are they all like this?
Express Professionals - dishonest firm, lawsuit; bad investment?
I have read where the founder Bob Funk is being sued for a 2nd time by his partner for embezzlement. Is Express having financial issues?
What does the typical Express owner make per year?
What does this say about Bob Funk's honesty and character?
Have other Executives been named in the lawsuit?
"Opting Out" of National Brand Promotions
Let's see, just this week I ran into two issues: 1) a Popeyes franchiser assessing an 8% fee ON TOP of the menu prices for using a credit card. (Against bank card merchant agreements, of course)
2) Subway local shop saying no more $5 footlongs no matter what....October promotion "killed" them.
I would just love to take a 34 inch baseball bat and smash in the head of every Spic, Paki, Korean/Viet/Chink slope or shiftless coon who works at a franchise fast food shop.
Most of you must be closet Kikes who bitch and moan when the national chain cuts your margins with promotions but hire workers who have no legal right to work, can not speak English and get less than minimum wage for their effort. I hope your fat ass middle age Jewess women suck lots and lots of black cock. And some crazy Islamo dude filets you for his own fatwah.
A lawyer told me she charges
A lawyer told me she charges $2,500 to read an FDD from cover to cover. Does this sound like a fair price? And also, would it be tax deductible?
Read it and give you good advice are two different things.
A smart lawyer will ne er advise you to buy any business. The franchise agreement is what governs the relationship. The rest of the fed is virtually useless. Contact Richard Solomon on this site. You will get much more knowledgeable advice than you will get from some attorney that will"read an fed".
Is it legal for franchisor to deduct from commissions paid...
I am a franchisee. I own a cruise franchise. My franchisor has been deducting from commissions paid to me commissions the vendors have not yet paid. Is this practice legal? For example, I am expecting commission from a hotel reservation but haven't yet been paid by the hotel. My franchisor has deducted the commission from my latest check paid on other commissions I have been paid on by other vendors.
read up on the coverall lawsuit.
It is legal until you prove it otherwise.
Franchise owner interview
I am currently taking a small business management class for my undergraduate business program. One of our assignments is to interview a franchise owner to get a better understanding of how franchises are opened and operated. The interview consists of standard questions such as: what motivated the franchise owner to become a franchisee? Would anybody on your staff be willing to take part in this interview? It could easily be done by phone or even email. If nobody on your staff is able to do this, could you suggest how I might contact the owner of a franchise? My professor suggested stopping in a franchise and asking for the owner. However, It doesn't seem like the owner is at the business during the day all that much, and most websites don't offer contact information for the owner. Thanks so much for your help,
-Luke Ritchie
A@W
We are looking at purchasing a A@W quick serve and YUM brands are selling of the A@W franchise. We are not sure if this would be a wise investment at this time or to go ahead with the purchase. Any advice would help as we have searched the net to find out what happens after a franchisor sells and with no luck on information. Thanks
franchise conferences
What are the best conferences for potential new franchisees/investors? I've been to small, broker-sponsored events that were thin and didn't have much to offer. Thanks in advance.
Background Screeners of America
Hello Franny,
I recently came across a franchise opportunity called Background Screeners of America. I wanted to
know if you have any information on this company and if it is a lucrative and legitamate opportunity. Any advice will be greatly appreciated.
Thank you
Marci
deduct sales commisssions form room sales to reduce franch fees
Can I deduct travel agent commissions from room sales to reduce franchise fees?
Right...
You put it as an expense right below electricity! Just kidding.
Royalties are typically on sales as defined by your franchise agreement.
Real Property Management
Dear Franny, I'm trying to research the Real Property Management franchise opportunity but don't see anything listed within your site, or in many other sites. Do you have any information on this company? Thanks
Real Property Management
Bill I was wondering if you ever received any information on the Real Property Management opportunity. I have been looking for info myself. Thank you
If you are looking
For anything positive.about a franchise around here forgrt it. This site is overrun by franchise haters who have lost everything in there endeavors and whose goal is to scare anyone and everyone away from franchising.
Can a lawyer be held liable
Can a lawyer be held liable for false statments written in a license / franchise agreement. Example: if the contract has a paragraph that states the relationship is not a franchise when in fact it is/was and the lawyer who drafted the agreement claimed to have franchise expertise.
Re: Can a lawyer be held liable
yes, the question is to whom...the licensor or licensee?
Assist 2 Sell vs Help U Sell
Just wondering if you had any information on which of these companies are financially stronger and sound. Thanks :) joy
QUIZNOS
So what's the latest with Quiznos? Are they well past their legal issues for me to take a chance and jump in as a franchisee? They are certainly pumping up their franchisee search efforts with that low franchise fee. Plus their website indicates they are pumping themselves up as a solid franchisor pretty good lately.
The initial franchise fee
should be damn near the least of any potential franchisee's concerns. I'm sure I'm not the only one here who has counseled against accepting a no intial fee (supposedly "free") franchise.
Anyone Know About Newk's Cafe franchises
What they have their on their website sounds impressive!
A Proven Concept
Our food is not the only good thing we’ve got going. Our Franchise Disclosure Document shows that our company stores open at least a year had revenues between $2.336 and $3 million in 2008. The total investment necessary to begin operations of a Newk’s restaurant franchise is $719,500 to $1,054,500. Our FDD also discloses our expense structure for each of our corporate units and can be obtained during our franchise candidate discovery process.
newkscafe(dot)com
Appreciate some help with my franchise research.
Newk's
Website info looks good!
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