Public Forums of Discussion

share franchise news, to prosper and amuse

Log In / Register | Dec 18, 2014

Dear Franny (Guests Post Questions Here)

Franny answers franchisee questions

Ask FrannyThis forum was created so that readers and members of Blue MauMau can post questions to Franny about issues of interest to small business and franchise owners. Franny sometimes invites world-class subject matter experts to answer tough questions

If your post is answered by Franny, it will be featured on the front page of this journal under the "Ask Franny" column.

In your post, please do not mention your franchisor's, vendor's or your own firm's name. The intent of this forum is not to give press to a brand name but rather to ask general questions that franchise owners within and outside one's brand might find of interest. (There are press release areas to sell what's great about a brand or other forums to tell tales of franchisee rip off.) Your question may be edited for clarity, brevity and frankly, some entertainment value.

936 Forum Remarks

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.

Fair Franchising

Is the franchise company liable if one the franchisee partners walks out on his contract? (The franchisee is made of 2 partners and one walks out on his/her responsibility.)

Paul Steinberg's picture

Zee partners: who is on the hook?

Guest writes: Is the franchise company liable if one the franchisee partners walks out on his contract? (The franchisee is made of 2 partners and one walks out on his/her responsibility.)

Ask a law professor if the earth is round and he will likely respond "it depends."

In this case though, it really is impossible to answer your question without more facts. As a general rule, if your zor has permitted you to buy in the name of the entity, there will be personal guarantees signed by all of the "natural persons" actually holding an ownership interest.

However, that guaranty only applies to the signatory parties.

So if the guaranty is in favor of the zor, it would not apply to a vendor. That is why landlords and vendors commonly require personal guarantors and landlords will often put "change of control" provisions if the lessee is a newly-formed entity.

Now in speaking of "partners" you need to understand that the word has a specific legal meaning. The responsibility of a "partner" in a "partnership" may be vastly different from a "shareholder" in an S-Corp or a "member" of an LLC.

CAUTION: In the case of a partnership or of an LLC, there may be certain "events of dissolution" and one of them may be one of the co-venturers deciding he doesn't want to be a part of the business anymore. On the facts you present, that may be a problem here.You should consult an attorney familiar with small business matters and the laws of your particular state. 

The responsibilities of the co-venturers may be specified by statute. In addition there are certain "common law" responsibilities which are not written down in the statutory law but are imposed by the courts.

Finally, remember that the ownership interest may be separate and distinct from any "employment"-type responsibility.

For example: if someone owns stock in an S-Corp which is closely held, that person may "walk out on his responsibility"-- i.e., not fulfill his obligations to participate in the day-to-day work of the company. So you can fire him, but that doesn't mean you can seize his stock.

One moral of this story is to have a written agreement between the co-venturers.

What this is called depends on the entity structure, but whether you call it a Shareholders Agreement, Members Agreement, Partnership Agreement... or whatever-- you need to have something which sets out the rights and obligations of the parties, and which provides a dispute resolution mechanism and an exit strategy.

Paul Steinberg
Franchisee Attorney, New York City, Ph: 212-529-5400

Dunkin Donuts

I am interested in what typically/usually happens at the end of the franchise agreement if a franchise owner wishes to continue to operate. The Dunkin Donut franchise agreement I read seems to be silent on this point. Anyone have experience in this area?

Re: Dunkin Donuts

Did you read the renewal provisions and couldn't find the conditions for renewal?  

Now if you mean operate as an independent you need to read the post-term obligations of the franchisee.

The Truth Shall Set You Free!

TIF

michael webster's picture

TIF is Right

Buddy, the DD franchise agreement is explicit on on what happens on non-renewal.

Do yourself a favour and read the agreement. 

Michael Webster PhD LLB
Franchise News

Re: TIF is Right

I was right?

The Cowardly Guest Troll didn't think my commentary was useful!  

The Truth Shall Set You Free!

TIF

michael webster's picture

Guest Troll

TIF, not sure that those who bash also read. 

Michael Webster PhD LLB
Franchise News

Re: Guest Troll

Obviously not! Since my posting history speaks for itself.  However the CGT had called for the masses of BMM to rise up in support of his condemation of me.

The masses have spoken...

The Truth Shall Set You Free!

TIF

michael webster's picture

Masses

TIF writes: The masses have spoken..."

I am a mass?  Jeez, I knew I was putting on weight, but ...

Michael Webster PhD LLB
Franchise News

More or Less...

You are a "mass" of cells and how big a "mass" I don't know? However you are a "mass" nonetheless.

The Cowardly Guest Troll is likely disappointed in the underwhelming groundswell of support to his "I despise TIF" position. I think he expected more from the BMM community.

The Truth Shall Set You Free!

TIF

Ok

will do

Paul Steinberg's picture

Caution: "renewal"

Just a cautionary note: "renew" does not really mean what many people think it does.

It does not mean that you continue under your agreement.

Rather, in franchising, "renew" means that you sign a new, different, agreement.

So if your old royalty rate was 3% and you could use a non-proprietary POS, your "renewal" might say the royalty rate is 8% and you use a proprietary POS costing a zillion dollars.

Buyer beware, and don't assume that you know what "renew" means. 

Paul Steinberg
Franchisee Attorney, New York City, Ph: 212-529-5400

Re: Caution: "renewal"

Thanks for clarifying..

Stop the Franchisor Madness

Assumptions:
1. The franchisor thinks the franchisees are stupid and can’t walk and talk at the same time.
2.The franchisor has only one sole-source supplier.
3.The franchisor holds lease.

The scenario:
Most franchisees are failing and those that are making money are being disenfranchised for minor infractions. And, since the franchisor holds the lease, the franchisees are turning in the keys to the franchisor (and thus getting the store for free). The franchisor just started a second corporation just to accumulate these stores. I suspect he will then sell them as a franchise and thus the second corp. is making a small mint.

The problem:
How can this madman be stopped? Which agency should I contact?

Instant Tax Service

Hi,

I just came across this forum searching on Instant Tax Service. We listened last night to a web session on opening a franchise. We have no experience in owning a business and would need to put a lot on the line to get this up and running. Are the costs of running this business accurate? Putting down $14,000, financing the remaining 20,000 at 0% and also taking an additional $20,000 loan (financed by them) to get started?

They made it sound like we would make this money back in the first year. Is this reasonable to expect? Do they provide the support you need to run this business? What advice would you give?

Thank you.

Instant Tax Service - 0% Financing

It is true .... I bought a store in Dallas last year .... The Zero % financing is a great deal and the buy-back is a nice security blanket .. The year went well and I'm looking to pick up another store!

Instant Tax Franchise

I am looking into getting a territory in Florida...any other pitfalls with the Instant Tax service?

Instant Tax Service - 0% Financing

It is true .... I bought a store in Dallas last year .... The Zero % financing is a great deal and the buy-back is a nice security blanket .. The year went well and I'm looking to pick up another store!

Instant Tax is being sued in Arizona for fraud-Banned in Arizona

Instant Tax was shut down in Arizona by Complaints to Attorney General Terry Goddard for false advertising and extortion of clients. Not paying employees and all the franchisees lost most of their money and made--NOTHING

Re: Instant Tax is being sued in Arizona for fraud-Banned in Ari

That is not true ..... I own a franchise in Phoenix .... Sounds like you have a case of sour grapes ... Being a business owner was not your thing, no shame in going back to the 40HR a week grind at $8 an HR ... Best of Luck to you

RUN! RUN! signed ~ X

RUN! RUN!
signed ~ X Franchisee of Instant Tax!

michael webster's picture

Instant Tax Service UFOC

1.  Getting your money back in the first year is a franchise earnings claim.

2.  Check item 19 of the Instant Tax Service UFOC, it should a) state you are going to make your money back in the first year, and b) explain why.

3.  If it doesn't say this, please run away... run away... run away...

(If you need help with finding the UFOC, ask me.) 

Michael Webster PhD LLB
Franchise News

Instant Tax Service UFOC

Mr. Webster ...

I am an Instant Tax Service Franchisee in Houston Texas. Instant Tax Service doesn't claim you will get your money back in the first year. Instant Tax Service WILL GIVE you your Franchisee Fee back after the first year if you are not satisfied. Show me another franchise that will do that!!! Good Day Sir

Franchisee Purchasing Requirements

I understand the requirements of Franchisees having to purchase inventory from preferred vendors to maintain consistency in product delivery, but what about equipment used to produce the product. What is a reasonable premium for a franchisor to receive on a $30K piece of equipment?? 10%, 20%?? and yes, "the franchisor has the right to implement a centralized purchasing system for the franchisees and negotiate prices and terms with suppliers and to receive rebates"

There has to be some level of reasonableness on what the franchisor can charge. I found the "exact" same piece of equipment for half the price. Do I have any recourse or am I stuck???

Frachisee Purchasing Requirements

CAN SOMEONE PLEASE HELP ME HERE? I am getting nickled in dimed all over the place so "kickbacks' can be received by the franchisor. Oh I'm sorry did I say kickbacks, I meant "Rebates"

Budget Blinds - Home Franchise Concepts

Curious as to your opinion on the numbers below. Is the net loss a negative indication? I think it is probably is. Company lost over a hundred franchise territories last year but sold over a hundred new territories for just a slight loss. There is very little negative information on the net regarding this franchisor, and the lack of much litigation seems positive.

Year

USA Franchisees

2008 2007 2006 2005 2004

1,009 1,047 1,062 915 730

Just starting our due diligence.

Thanks.

Budget Blinds

>>Curious as to your opinion on the numbers below. Is the net loss a negative indication? I think it is probably is. Company lost over a hundred franchise territories last year but sold over a hundred new territories for just a slight loss. There is very little negative information on the net regarding this franchisor, and the lack of much litigation seems positive.

Year

USA Franchisees

2008 2007 2006 2005 2004

1,009 1,047 1,062 915 730

Just starting our due diligence.

Thanks.<<

You need to work your way through the list of transfered and closed locations to get the answers. Did they close the doors, sell or simply go independent. Possibly the franchise agreement was loose enough to allow independence.

Now, is not the best of times for the market segment served. The economy is terrible, people may defer buying new blinds. Other than that, Home Depot and Lowes sell blinds and cut them to exact size in the store for less money! This makes a viable concept less viable.

The barriers to entry in this business are realatively low.

If you are seriously considering jumping in, talk to local blind fabricators about using their services. Come up with a name and go for it. "If they can see in, you need to call Hang-ups by me!"

Budget Blinds

>>Curious as to your opinion on the numbers below. Is the net loss a negative indication? I think it is probably is. Company lost over a hundred franchise territories last year but sold over a hundred new territories for just a slight loss. There is very little negative information on the net regarding this franchisor, and the lack of much litigation seems positive.

Year

USA Franchisees

2008 2007 2006 2005 2004

1,009 1,047 1,062 915 730

Just starting our due diligence.

Thanks.<<

You need to work your way through the list of transfered and closed locations to get the answers. Did they close the doors, sell or simply go independent. Possibly the franchise agreement was loose enough to allow independence.

Now, is not the best of times for the market segment served. The economy is terrible, people may defer buying new blinds. Other than that, Home Depot and Lowes sell blinds and cut them to exact size in the store for less money! This makes a viable concept less viable.

The barriers to entry in this business are realatively low.

If you are seriously considering jumping in, talk to local blind fabricators about using their services. Come up with a name and go for it. "If they can see in, you need to call Hang-ups by me!"

Budget Blinds

We actually are calling every USA franchisee listed as being terminated or released. When you call the ex-franchisees, most phone numbers have been disconnected. You have to do a zabasearch or similar to reach them. Some have gone bankrupt and others said it just wasn't for them. A number of them had to sign NDAs and so were reluctant to talk, though (in my naivety?) I don't understand the secrecy. I expect mostly negative comments as if their experience were positive, they would probably still be with Budget Blinds.

One thing we were hoping to gain by the franchise route is the branding and the training. The Discovery Day experience by this franchise is enticing. While we realize that its main purpose is to sell us on their concept they do try to vet their prospective franchisees in it also.

Again, I very much appreciate your help in these tough decisions. Also, Mr. Solomon's articles on his site were informative and helpful, though they increased my middle aged cynicism even more of any franchisor out there.

Thanks again.

[email protected]

visualization

>>I don't understand the secrecy. I expect mostly negative comments as if their experience were positive, they would probably still be with Budget Blinds.<<

You are right that you would get mostly negative comments, just beware that you don't get lulled in discounting all the negative comments. This would defeat your purpose.

Re: visualization

Thanks for the assistance.

Our number one franchise we were considering just lowered their purchase price by around sixty thousand dollars. Seemed more like a get you in the door special so we took them off the table. And even given the selection bias we experienced calling the ex-franchisees, we talked to too many people that were bankrupt or too close to it.

Numbers two and three wouldn't give us any hard numbers on earnings for all of the franchisees so we pulled the plug. We would get earnings claims but there were too many conditional statements attached. Just seemed too elusive.

After much research and some dollars spent, we have decided to move on without purchasing a franchise. We may start our own business or buy an existing but feel more entrepeneurial than being under the fingers of the franchisor. I got the feeling that a lot of franchisees, of all kinds, were getting micromanaged and nickle and dimed. I'm sure there are great franchises out there -- we just didn't run into that many positive stories regarding franchises that were available for under $500 thousand.

Good luck to all and thanks for the informative web site.

Nathans

I am very intrigued at the due diligence conversation and was curious to know how much the general cost of a franchise attorney SHOULD be. I believe It is a no brainer to save your investment and I would be starting my first franchise so not getting burned too heavily would be of great importance.
I was wondering if anyone has any thoughts about the Nathan's Famous Franchise. My interest in the concept would be to build the brand out in California. The problem is that I have had little success getting any fedback with respect to the brand. Any feedback that could be offered would help.

michael webster's picture

Fees for DD

It should be around 3-5k, involve homework, and last between 4-6 months.

Don't have lawyer simply read the contract for you. 

Michael Webster PhD LLB
Franchise News

A lawyer should tutor his witness before he goes to witnesstand

hai,please give your view on the above topic.

RichardSolomon's picture

Of course a lawyer needs to flog his witness before the witness

has to deal with actual testimony. For a complete statement of why and how, see Preparing A Witness To Testify on www.FranchiseRemedies.com

--http://www.franchiseremedies.com/witness.htm

Richard Solomon, FranchiseRemedies.com,  has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School

Re: Dear Franny (Guests Post Questions Here)

is a quiznos considered a good and fair franchise ???

Astro and Astro Events www.astrojump.com

I'm thinking about becoming affiliated with the above group. Can anyone tell me if they are a franchise or only a licensed name?

Howard R. Morrill's picture

re: Astro and Astro Events www.astrojump.com

They are a franchise--whether they know it or not.

But Howard...

What are you talking about? I called my business offering a "license" not a "franchise"!!!  You can't make me be a franchisor if I don't wanna!

The Truth Shall Set You Free!

TIF

michael webster's picture

2007 UFOC?

The 2007 UFOC is here: http://134.186.208.228/caleasi/search.asp?TASKNAME=xshowDocs&PackageID=2...

As for the 2008, FDD why not write them directly and make a reasonable request?

Michael Webster PhD LLB
Franchise News

Jimmy John's Gourmet Sandwiches

Dear Franny,

Do you have the scoop on Jimmy John's Gourmet Sandwiches??? I have a couple of partners interesting in this concept.

Thanks

Where can I get a UFOC document for Jazzercise to review?

I would like to review the Jazzercise UFOC (FDD) but can't find it online. I requested it from the company but did not receive a response. Where or how can I get a copy of the complete document to review? Thanks.

20% Rule

Does any know of a ruling that states as a franchisee you are allowed to purchase up to 20% outside the sole-preferred vendor so long as it does not infringe on propriety product?

20% Rule

Did you ever get an answer here?

territory identification

Are franchise geographic territories (for business services) available in the public domain or is this something that needs to be purchased through a vendor.

Blue Coast Financial

Does anyone have info about Blue Coast Financial, please? Fred

Blue Coast Financial

RUN. I was taken for a ride and lost $20K, plus many months and other dollars invested in their 'programs'. Don't get me wrong - the programs are legit - but they (Blue Coast) promised the moon, and all I got was a moon pie smack in the face. RUN, don't walk, to the nearest exit!

Post new comment