franchipedia
articles
blog
podcasts
newswires 
forums
calendar
toolsDear Franny (Guests Post Questions Here)
Submitted by Dear Franny on Sun, 2007/01/21 - 21:46.
Dear Franny Answers Franchisee Operational Questions
This forum has been created so that guests and members can write into 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.
Weight Loss Industry
Anyone have experience franchising in the weight loss center industry. Not fitness like Curves, but pure nutritional counseling and accountability? I am looking to expand with a weight loss center that has been in operation for over 35 years. My other locations have been profitable, just wonder if there is any downside to the industry after seeing chains like LA Weight Loss close up shop?
Thanks!
Go for it!
If you have been successful with past endeavors with the company--I say go for it! Just make sure you are capitalized for expansion. A business can always work with profitability and good service.
book recommendation on franchising
If you could recommend one book to read on franchising which will help me investigate franchising with my eyes wide open, what would that book be?
One book....
Franchise Fraud by Robert Purvin
Purvin's Franchise Fraud
I agree and a new edition will be available shortly.
I will be running a contest soon here and plan, over time, to give away 12 -15 copies. So stay tuned.
Michael Webster PhD LLB
Franchise News
I've called a number of franchise companies
and they won't talk with me because I don't have enough money. I think that this is rude of them to not want my business.
Thanks for Rude Franchisors
These franchisors just saved you the embarrasment of going bankrupt. You know the scenario. Within days you find you have no money to fund your start-up business so you have to file for bankruptcy. Your wife and children leave you because they think you are a loser who can't even support the family. And then you find yourself alone in deep, dark despair.
You should thank such rude franchise companies and your lucky stars that these companies turned you away so quickly.
Work hard as an employee to save money a little at a time. In business, there is nothing more persuasive than money. Once you have it, franchise companies will flock to you to get you to invest.
In the end, the rule of "no money, no talk" in starting a business is the kindest.
I wish our zor
was rude and let us go. As far as the guest comment, consider yourself very fortunate.
Accounting training for new franchisees
I wonder if you can tell me what is the best way of contacting franchisors and franchisees to find out more about the success of their new business training, specifically, how to track their accounting. I know some have proprietary programs for sales, but not a complete ledger program. We are heavily involved in new business training in the area of accounting for a major pizza chain and we feel its a blessing for franchisees.
Please advise and thank you in advance!
Christine M Galli, M.Ed.
www.acctres.com
How Can I Handle an Unreasonable Sub Development Agent?
Dear Franny,
Have you heard of anyone having unreasonable dealings with a Subway Development Agent? I am a zee and am having a hard time with mine and am finding that others who have had similar problems just choose to quiet down and go away...In a nutshell, she is preventing me from purchasing another location and won't give me a legitimate reason why.
I run a tight ship, my own sales were up 26% last yr over the previous owner, I attained 100% financing in 72 hours, and I submitted every piece of paperwork she asked for in record time. I envision her as someone with a life size chess board on her desk and we, the little guys, are the pawns. I am fearful that if I don't handle this correctly, my store will be targeted by her field reps and make my life miserable.
I did contact an attorney this week, but at the same time, I don't want my current location to be a "victim" if I get her even more stirred up. Help! Direction?
"Sad-Sub-Owner"
My franchisor won't let me increase my volume!
I have an opportunity to add menu items to my fast casual restaurant that in my area i know my customers would buy, but the franchise people say no that it does not fit their program. I also want to do catering and fairs to earn more sales. I am far from the corporate people and i may do this with out the permissioin.
My franchisor won't let me increase my volume!
I have an opportunity to add menu items to my fast casual restaurant that in my area i know my customers would buy, but the franchise people say no that it does not fit their program. I also want to do catering and fairs to earn more sales. I am far from the corporate people and i may do this with out the permissioin.
Franchise contract termination
I am looking to sell a profitable unit of what has become a struggling franchise company. I am concerned that potential buyers for the business may be turned off by the franchisor problems. One strategy I have considered is to attempt to extricate myself from the franchise agreement, rebrand the store, and sell it as an independent business.
The business is in California and I believe that franchise laws work to my benefit here. I also feel that I have a number of solid claims I can make against the franchisor, so I am optimistic. Finally, the franchisor has allowed their franchise registration to lapse in the state of California, although they say they will be re-registered in 60 days, and I don't know whether or not that may help my case.
If anyone has any experience in this area and can share some advice it would be greatly appreciated.
Question re: selling my franchise store.
Franny-
first of all thank you for offering free advice by way of this forum.
I have a sub sandwich franchise that i have owned for 2 years and 9 months now. Last October, despite my repeated pleas previously not to do so, a new franchise store opened up within blocks (5 blocks to be precise) of my protected delivery territory (we offer a delivery service). As i had anticipated, the new store opening effectively killed my sales sending my sales growth rate week over week from between 5% and 30% (an average of 17% week over week growth from 2006 to 2005) to between -10% and -17% practically overnight. The immediate loss of sales put me from being moderately profitable to unprofitable. It is now August 2007 and i'm still running at a rate of approx -10% to -15% negative sales growth week over week from the previous year. My franchisor assured me that my sales would IMPROVE with a new store in the area driving up brand awareness - not.
As i saw the direction this was heading i notified the franchisor back in february 2007 to consider my store for sale. The new franchisee who moved in within blocks of my protected territory (normally you'd want to stick a store in the approx EPICENTER of a territory - instead the franchisor let him stick one in the far northwest corner of his territory, very close to my own store) has signed an area development agreement and has to open three new stores in the next 36 months. They have expressed an interest in purchasing my store. I'm reluctant to sell to them as:
1) they know that i'm now unprofitable and what their store opening did to my sales/earnings so i'm sure they'll lowball me with an offer.
2) i'm not particularly inclined to help out their situation seeing that they are partly responsible (with the franchisor) for putting me in my situation.
The franchisor has told me that there are other parties interested in owning a franchise store in my area. I've asked him to please forward me their information so i may contact them to notify them of my store's availability for purchase. The franchisor refuses to do so, stating that these prospective franchisees are mulling other systems and once they choose our system he will gladly provide that contact information. I countered that it is indeed counter-intuitive to withold this information from a prospective franchisee seeing that the opportunity to purchase a store at a fraction of the price of a new build-out could help persuade them to invest in our system vs. that of a competitor. When i press the franchisor on this point they refuse to attempt to even refute my point, just saying that it is their policy to do so.
Of course, we all know what is going on here -- the franchisor knows damn well that a new franchisee in my store will have to deal with the same encroachment issues that i have had to endure. If the existing franchisee that encroached upon me buys the store, problem solved. Thus, the franchisor's interests trump my interests in their mind and if that causes me to lose more money in the sale (and possibly lose my house, file for BK, etc...) well that's just the way things must be.
Do you know if there is any franchise law that requires franchisors to disclose existing units for sale to prospective franchisees? I found nothing in my franchise agreement that addresses this and i'm just not sure where to go from here.
I dream of figuring out a way to close my store and screw the franchisor in the worst possible way (if i'm going down in flames then i'm taking them down with me) but my dreams alas yield no practical tactic for doing so other than taking my story to the local media after this nightmare is over. Bottom line is i must sell my store and i feel that they, if not contractually/legally then at least ethically, should provide prospective franchisees so that i may get the largest possible return on my investment at this point.
Any ideas on my question? thanks in advance.
franchisor practices
I am wondering if the franchisor I am under is doing something illegal. The franchisor is requiring all franchisees to exclusively purchase a P.O.S system exclusively thru the company and offering no options to shop it nor provide spec requirements. Second, franchisor is requiring ea franchisee to pay a monthly Technical Support fee (auto debit) in the amt of $100.00 a month . The company providing this service is partially owned by the franchisor and in many cases, it is the franchisor or one of the company employees answering. The technical support is lousy, the software was created by this secondary co partailly owned by the franchisor and it is poor quality. Does this merit legal action? If I were to see a suit , I am worried the franchisor will retaliate.
Website Shutdown- 'The future of free speech'
I’m an ex-franchisee of the Australian franchise Bakers Delight (BD) and author of the website www.bakersdelightlies.com. I have created the website highlighting the long list of wrong doings by the BD franchisor. Recently and not surprisingly due to the popularity of the website I have received a complaint filed with World Intellectual Property Organization (WIPO) by BD. BD has requested that I transfer ownership of the domain name to them or shutdown the website.
The website is one of the few resources that highlights the potential pitfalls of purchasing a BD franchise and for that reasons the silencing attempt. I have researched past cases similar to mine and found that a lot of weight is placed on free speech for non commercial cases like mine. Any input or comment on this subject would be greatly appreciated.
Andrew
minority franchises
This comment has been moved here.
Frankman, Solomon, Webster and Quiznos Question
What are your takes on a franchisor that mandates purchases of food, supplies, and equipment through their vendors at ridiculously inflated prices? At what point does the UFOC not carry any weight as to what they can legally get away with?
Part of owning a franchise is to take advantage of the buying power of a large number of stores. If a franchisor decides to jack up the prices at the franchisees expense, it's easy to see that they can make a lot of money. The bottom line question is this: Why wouldn't a franchisor charge franchisees 50% above market prices for their food? What's to prevent a franchisor from charging $100 a pound for turkey?
If there isn't any recourse from this predatory practice, at what point does the courts or government step into to protect the little guy? We are talking about a loop-hole in a system that opens the door for greed and corruption.
Where can I get help valuing an existing franchise?
I am buying a franchise that was successful uner the first franchisee, failed under the second franchisee, and is now owned and operated by the franchisor.
I need to make an offer, then negotiate. I want to perform a solid value analysis. The offer will be made on the basis of that analysis. Subsequent negotiations will be guided by that analysis.
But I need help. How do I get in touch with a few consultants who might give me that help for a reasonable fee?
Red Robin Experience/ Due Diligence
This comment has been moved here.
Accounting 4 Franchisees!
Christine:
I'll respond to your question via Bluemaumau e-Mail, due to the nature of the question, and my answer.
FranTastic Franchising,
Franny
Dear Sad Sub!
Dear Sad-Sub:
First, Congratulations on your successes! It is nice to hear from a successful franchisee looking to expand by way of multi-units within the same brand.
I'm sorry to hear that you're experiencing what sounds to me like a case of "poor communications" with your Subway DA. It's always frustrating when you are 'Fired-Up" and excited, and a key 'center of influence' fails to share in your excitement and assist you in executing your business plans.
There are many pros and cons to multi-unit franchise ownership, and these pros and cons are perceived differently from the view point of franchisee and franchisor. Perhaps you are 'ready' for expansion and perhaps you are not. Either, way your DA should be providing you with 'good' communication and working with you to develop a plan for growth.
Within franchising the latest reports indicate that 82% of all franchisees operate single units, controlling 51% of the units. Approximately 30% of Subway Franchisees own multi-units, so this would suggest that Subway has a willingness to develop multi-unit franchisees.
When responding to these posts, one must at times try and 'read-between' the lines and you wrote that your DA would not provide you with a 'Legitimate' reason. I'm not suggesting this is the case, but I caution you to always remember that because you do not agree with the advice/opinion/decission of your franchisor that does not mean that it is not legitimate, valid, or well intended.
I do not believe that retaining the services of an Attorney is the appropriate action. Unless you have something in your Agreement that states that they (subway) will sell you another location at X time, under X conditions etc....
I do believe that if you have not already done so, you should prepare a business plan which validates the logic of your desired expansion, and demonstrates how you'll handle the challenges of Multi-Unit ownership. You should then provide this business plan to your DA, and perhaps copy it to a few of your key franchisor contacts.
Additionally, you may also contact NAASF. You do not have to be an NAASF member, they represent ALL Subway Franchisees. You can contact NAASF CEO Jim Hansen by email at jhansen@naasf.org. If you are a member, you might also post your question on the bulletin board at naasf, to see if other franchisees have experienced similiar situations with this same DA.
I hope you find some direction in these suggestions, and I wish you the best of luck in your growth, while cautioning you not to try to grow too fast.
Franny
Franchisees can only use Assets on Behalf of Franchisor
Of course you do but your franchisor only wants you to provide royalties for him in the use of your assets and unless you get his permission and provide royalties from these new products, they will probably take you to court or terminate you and try to steal your business. You are branded and don't forget it, and don't let them steal your business for damaging that brand name.
That business of your own that you bought is just a myth. They own you lock, stock and signage! but you pay for the lock, the stock and the signage.
Face it! The franchisor is just smarter than the franchisee. When you can get someone to build a store for you and equip it and work in it and pay you to use the brand name and pay you to advertise the brand name and give the store to you when he/she fails, this is smart, and what does that make you? Franchising is for dummies!
Adding Menu Items!
Well of course you know Franny could never advise you to go against the terms of your Franchise Agreement. So, the first thing to do is to pull out your Franchise Agreement and LOOK to see if and how it restricts you from adding menu items, as well as from pursuing other distribution channels (i.e. catering & fairs). I've learned over the years that some FSM's (Franchise System Managers) say "No, that's not how we do it here", without really knowing - why not.
Assuming that your agreement does prevent you from pursuing some of these additional avenues, don't do it without permission. Don't violate the terms of your agreement. Don't think you'll hide it, because to hide it you're not going to report royalties on the revenue. Your purchases and 'reported' sales are not going to add up, and if you get audited you could be jeopardizing your entire operation.
For now I'd suggest that you look at ways to increase your average ticket, and bring in more 'core' business. Simultaneously, prepare a 1 or 2 page proposal to present to your franchisor. Show what you think you can add to your sales ... and additional royalties which would be paid. Ask that they let you test it for 6-months, and if it goes as you suspect they can roll it out to other stores with similiar demographics to yours. You might recount how it was a FRANCHISEE who got McDonalds into selling Fish Sandwiches. Present a clear and compelling argument, show them what's in it for them, don't take "NO" for an answer ... but don't do it until you get the O'Kay from your franchisor!
Frantastic Franchising,
Franny
Strategic Self-Term?
What you're proposing has been done before, the best strategy will depend on a number of factors, let me ask you a few questions. Answer them the best you can without giving away your identity, your business or your franchisor. If you need to provide identifying info and do not wish to make it public please email via BMM mail.
After I've had a chance to review your answers, I'll provide you with a better and more strategic response.
FranTastic Franchising,
Franny
Zor obligation
As a starting point, I would suggest that you speak with an attorney experienced in representing franchisees; there may be state laws and contract-specific matters which are relevant to your particular situation.
In general, the zor does not owe the zee any fiduciary duties. Indeed, the zor often directly competes with the zee.
You raise 2 common situations: encroachment, and pushing out one zee in favor of another zee. There may be issues relating to the implied covenant of good faith, but those issues would require knowledge of applicable state law and your contract.
You state that you have a contractually-granted territory. If so, the franchisor's actions may be actionable. The siting of the competing store just 5 blocks away and the resultant sales decline suggest that there may be a deliberate attempt to prevent you from obtaining the fruits of the contract, and perhaps an outright violation of your territory rights. But again, this is a very fact-specific inquiry which you should take up with an attorney.
As you suggest, the franchisor's rationale for not providing you with prospective purchaser contact info is absurd; the real purpose is to force you to sell the store to their favored choice. The question is whether you have legal recourse, and that is not entirely clear on the limited facts provided. I know that's not the definitive answer you seek, but it is the best I can offer.
Your situation is a common one in franchising, and highlights the divergent interests of not simply zor and zee, but the ability of the zor to play-off one zee against another zee.
ENCROACHMENT REMEDY
I'm sure I know who your franchisor is without you having to say so. If I'm correct, their attitude is that you were stealing from them by skimming the territory and not aggressively going after the business that you have to dig out. According to that attitude, the new store near you is a teaching event in which you learn how to do some real work for a change.
What can you count on in this situation?
They won't do anything to change what has been decided.
You can sell at their price or somehow work to get the performance up in hope of getting a higher price later. What with other new sandwich shops coming on line for franchisee suckers almost every month, I would'nt give much for your chance of improvement.
You can stay in business for spite, but you will only be spiting yourself. Would you rather bleed out slowly for a few years or cut your losses?
You can cut your losses in two ways - sell out to them now (lose less money over the long run) or you can go into bankruptcy. As you have guaranteed the performance of the franchise agreement, your premises lease and your SBA loan (in all likelihood), you will have to declare bankruptcy personally as well as corporately in order to get the job done.
It aint pretty, but there it is. There is no duty of good faith that will do you one bit of good. You can't afford to arbitrate and deal with the results of the arbitration - you will just end up in bankruptcy after enduring more agony. Do it now and end the pain quickly.
Richard Solomon
www.FranchiseRemedies.com
Some Observations and Suggestions
I hear your pain and understand your frustration.
I offer you some observations and suggestions:
Doing things to spite anyone, is always a waste of energy. Do what serves your best interests and the interests of your business.
You make some assumptions about the selling price someone may offer you. Why don't you hear what they have to offer before making any assumptions.
The franchisor assured that your sales would improve. Why don't you try and get them (and the other franchisee) to back up their assurances, with increased advertising, local shop marketing, direct mail support, etc to help build sales.
Have you tried to co-op ads with the new franchisee?
There is one thing that is self evident in business: brand awareness is crucial to building sales. What have you done to take advantage of the improved brand awareness the new location has brought to the area?
Rather than just doing what you did before the encroachment, I encourage you to adopt new strategies to try and take advantage of your current situation.
Keep your ears and eyes open to opportunties to help you build sales.
Selling your business is always an option, keep an open mind to all offers.
Jim Coen
Email: Jim@franchiseperfection.com
Blog: Lets Talk Franchising
Some Observations and Suggestions
I hear your anger and understand your frustration.
Doing something to spite someone is always a waste of energy.
Here are some observations and suggestions:
Before you were alone in the marketplace now you have someone sharing your brand nearby, I suggest you change your mindset and look for ways to take advantage of the situation.
Jim Coen
Email: Jim@franchiseperfection.com
Blog: Lets Talk Franchising
What does your franchise agreement say?
Your question is impossible to answer absent facts.
The Truth Shall Set You Free!
TIF