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Due Diligence

The subject of exercising proper due diligence, that is to say to thoroughly research a franchise system before buying one, is being brought up on almost every legal article. It is such an important and long-standing issue that it warrants its own forum area so that the topic can be properly explored.

Below is a discussion on the need of due diligence, resources for it, how to do it and its limitations.

62 Forum Remarks

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To the prospective franchise Investor

Dear Prospective Franchise Investor, If you are reading these boards, you will notice a common theme in all postings. 1) Hire a due diligence expert 2) don't think the government will protect you if something goes wrong 3) work with an attorney expert to explain to you these agreements and the law. Franchise law is UNIQUE.

I am here to tell you all that I am the victim of not following that advice. I bought a franchise in 08 and closed it by early 09 when I learned I was frauded. I worked the franchise for 8 months and now so far have spent 8 months and almost 1/2 the franchise investment working with lawyers to prove fraud and attack the contracts. What I've learned from this experience is important for the prospective franchise investor to understand in layman's term. This is why you need an expert to help you and you simply should not invest $250k to $1mil, signing away your personal assets (which you will do to banks and the franchisor) without hiring someone to help you with due diligence first:

1. Don't think the law will protect you.
Your contract will say that a) you never were frauded b) no one ever told you to invest and you did so willingly c) you investigated everything independently. The FDD makes clear on page 1 that no government agency ever reviewed what the franchisor filed and it is up to YOU to investigate independently.

2. Your contract will limit the law.
You will sign that you cannot receive damages. That the contract will uphold unless you get it thrown out in court. You will have a limited time to sue. And, at some point, you may even sign a document called a 'general release' where you contract that you will give up all rights to sue, even for fraud.

3. Judges uphold contracts
Don't think that just because something is illegal or fraudulent you can sue. If your franchise fails and you sue for fraud or misrepresentations, the judge will read your contract and say "you signed that this didn't happen"
"you signed that no misrepresentation took place". The judges will most likely throw your case out of court. Even if they don't, again, read above...you limit what you can get back if anything.

4. You are no longer a consumer.
This is the biggest lesson I learned. When you buy a franchise, you are no longer a consumer and consumer laws and remedies for suing no longer apply. YOU ARE AN INVESTOR. This changes how a court perceives the fraud. Let me simplify this: as an investor you buy stock, a company gives guidance for the year, they may or not meet their targets. You can't sue because your investment risk in stock didn't go up. THIS IS EXACTLY HOW FRANCHISE LAW WORKS. You are an investor. Your FDD will tell you you are taking on this risk and making the investment on your own free will. A judge will not look at you as a duped consumer if something goes wrong. They will say "the franchisor told you this was a risk, the franchisor documented that no government agency reviewed this, you signed all over the place that you took on this risk of your own free will".

5. You don't "BUY" a business you "LEASE" a business.
You only own that business for as long as the contract says you own it. You will have to renew, the franchisor retains the right to change ANYTHING they want - even the brand name. You only own a brand and some assets for a 10 year period and you give up your right to continue in the business in most states after 10 years because you will sign that you will not compete.

If the above, which I tried to make simple for those of us who struggle around what these lawyers are writing on BMM, doesn't make sense, you need a lawyer and a due diligence expert. If the above does make sense, you need a lawyer and a due diligence expert.

Don't make my mistake. I learned from it. HIRE an EXPERT. No one is good at everything. Maybe you're good at marketing, or operations, or you can read contracts, or good at finance. You need experts to help you because NO ONE is good at everything. Small Businesses will force you to mostly become good at everything. Especially franchises. Don't think the franchisor is going to train you in a 3 week program to be good at everything.

I hope this diatribe makes the front page of BMM in big bold letters.

Granville_Bean's picture

killer DD all right

You can do so much due dil that you will NEVER do a deal, every one would be "killed", because there is no such thing as a sure thing. If there was a surefire money back guaranteed investment that had a low entry cost and required no time, no ability and little training, why wouldn't EVERYONE be doing it and then we'd ALL be "rich".

You could spend all the money you had paying consultant after consultant to find the flaws that you couldn't find for yourself, on deal after deal, and each time think "whew they saved me from a bad deal". But maybe they are saving you from a good one too; it is in their interest to be pessimistic because if they didn't kill the deal and you did it and you failed, you'd be suing your consultant for not warning you.

Yes, a lot of deals SHOULD be killed, and a lot of people buy stupid stuff on a whim. But to me the answer is not to hire more consultants to tell you what to do, it is to have some freakn' COMMONS SENSE to begin with. Ever scammer Zor needs a pool of sucker Zees to bite on the bait.

Sure the Zor is a scammer but so many times a prospective Zee knows nothing about business and acts as if buying a franchise is a substitute for having any skills of their own. They should remain employees someplace where they can let their boss think for them, they are not capable of being the boss themselves. People would not bother to troll Nigerian money order scams unless SOMEONE was biting on them, and there would be no market for scammer Zors unless there were enough sucker Zees.

Hiring consultants to do Due Dil is no substitute for your own business judgement. If you don't have the least clue maybe you shouldn't be in business for yourself, because you are not going to be able to afford a consultant with you every minute to tell you what to do, AND THE ZOR WON'T HOLD YOUR HAND EVERY MINUTE EITHER.

Re: Small Businesses Weigh the Merits of Franchising

After years of being contractually and financially locked into this hell called franchising, my advice for people losing their jobs and considering handing over their savings to buy themselves a job is quite simple...RUN AS FAST AS YOU CAN! Take a job as a grunt at a franchise for minimum wage...trust me...you're net worth will be greater at the end of the week and it's easier to get out.

FuwaFuwaUsagi's picture

It was written: Do we

It was written:

Do we reconcile these disasters with broad statements of ‘buyer beware'?

and

Contract Law is the game that franchise scams hide behind and if the Law allows it then the Law and/or the processes to achieve justice are deficient.

My reply:

Yes we do reconcile it with buyer beware - period. The law cannot provide justice, it never has, nor can it protect you. All the law can do it attempt to rectify problems after they occur, and you will never be made whole in terms of time, energy, and emotional damage. Ask anyone who has lost a family member, ask anyone who has lost their life's fortune if they felt justice was served by whatever sentence or punitive assessment was imposed on their transgressor.

If you want justice, you can hire it out in any major city for a nominal fee. If people bring hurt to you and your family justice dictates you bring equal anguish to them and theirs. Court rooms and law does not do that, so throw the fantasy of justice out the window. Once you get over that childish notion you are left with the function of law, which is simply the rules we abide by.

When you get beyond the idea that the law is there to protect you and administer justice you can enter the world of adults.

When you leave your home, assume you will be physically assaulted. If it occurs it will not be in the presence of a law enforcement official; so be prepared. When you are in your home you should assume that someone will forcefully enter it intending harm to your family, you should be prepared. You should assume that every one entering your domain means you and yours harm.

In every business dealing, assume the man across from you is out to get whatever he can, by whatever means he can - period.

Assume your Representative in Congress is looking out for his own interest, and you will seldom be disappointed. Assume you priest/pastor/minister/guru is a sinner, you will seldom be disappointed.

Now you might think that is a cynical view but be prepared to be delighted. When you are prepared you will constantly be pleasantly surprised and delighted with all the warm hearted, honest, open, caring individuals you meet every single day. You will delight when you do business on a handshake and it works out the way it was suppose to. However if not, you know you did business on a hand shake because you knew the person's background, you know his vices, you know where he goes, who he associates with, his strengths, his weaknesses, and the reason you don't need but a handshake is you are convinced you can force him to comply with the agreed to terms utilizing that knowledge.

You do not need Government trying to protect you - they cannot. Get over the silly notion they can. You don't need them either. Stand on your own, be strong, and every single thing you do assess the risk it brings to your family; mitigate risks to your family - be a man.

And if you are a woman, find a man and free him to act with one without feminizing him with this liberal feminist B.S. , as a woman and if you can't figure out how to properly incentive a man to act like a man you are already beyond help.

Cripes folks, it is not that hard.

FuwaFuwaUsagi

"Never underestimate the power of stupid people in large numbers."

Taking the Law into ones Hand

Fuwa wrote:
If you want justice, you can hire it out in any major city for a nominal fee. If people bring hurt to you and your family justice dictates you bring equal anguish to them and theirs. Court rooms and law does not do that, so throw the fantasy of justice out the window. Once you get over that childish notion you are left with the function of law, which is simply the rules we abide by.

When you get beyond the idea that the law is there to protect you and administer justice you can enter the world of adults.

I say:
If I am reading this correctly it would almost appear as though you are telling us to take the law into our own hands. I couldn’t agree more - to a point.

michael webster's picture

Proper Skepticism

Fuwa writes: "In every business dealing, assume the man across from you is out to get whatever he can, by whatever means he can - period."

I think that this is too harsh a view.  However, I also believe that it contains a very important truth.  

When engaging in trade, you must understand what the other fella gets out of the deal. 

It must make sense from his or her point of view, otherwise one of you is fooling the other.

Always look at the trade from the other side's point of view - if you cannot figure out what they are truly getting out of the trade, run away.

I am not sure that this is a gender or sex based insight, as Fuwa suggests.   

But it is important to develop the skepticism - what is in it for the other person? 

Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"

Boudica Lawson's picture

How to alienate the entire female readership of BMM: STEP 1

Fuwa writes: "And if you are a woman, find a man and free him to act with one without feminizing him with this liberal feminist B.S. , as a woman and if you can't figure out how to properly incentive a man to act like a man you are already beyond help."

This comment is disgusting, derogratory and discriminatory. If this was intended to be sarcastic it failed.

The notions you imply with this comment indicate to me you are living in the dark ages and completely and utterly removes any respect I might have had for your other opinions.

So the answer to my franchising woes as a female franchisee is to "incentive a man" to do it for me. Brilliant. sounds way cheaper than a lawyer. Don't know why I didn't think of it myself- must be because I am a woman beyond help.

I will stop trawling the legal and franchising sites for info and turn my attention instead to the dating sites. Got any hints for performing due diligence for prospective men folk?

"Never underestimate the power of stupid comments from large egos"

michael webster's picture

Self Help

Boudica writes: "So the answer to my franchising woes as a female franchisee is to "incentive a man" to do it for me. Brilliant. sounds way cheaper than a lawyer. Don't know why I didn't think of it myself- must be because I am a woman beyond help."

I don't read Fuwa as suggesting anything like this.  

I don't quite understand your franchising woes, even though I have read your posts.

Fuwa has a harsh, but fair view about contracting:

1. Don't promise, if you cannot deliver.  

2. Don't whine when you cannot deliver.  

3. Don't pretend to promise. 

Fuwa also wouldn't enter into a business without fully committing to 1-3.  Which is why he sounds harsh to those who have had businesses which fail.  (I still don't understand what 1-3 is gender based or biased.)

Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"

FuwaFuwaUsagi's picture

Michael: There is not gender

Michael:

There is not gender based component - I should have written "as an aside" to make it clear, although it was a separate paragraph.

The point, as obscure as it may seem to be, is I have been involved in business men's circles since I was knee high to a boll weevil and I have noted the change in tone over the decades. At one time a community business meeting was moderately profane with men cussing about the dirty sob who ripped him off for about 2 seconds, till someone reminded him it was a dirty thing that was done to him, but it was his own darn fault. Now decades later the conversation goes on like the bloody Oprah show with so called men who need healing, space, time away, coming to terms…and they wonder why the do not have two nickels to rub together. If the worked at 7-11 for half the time they spent female dogging it up they might have something to roll into a new venture, wiser for the experience.

So it was a social commentary. But it is pretty hard to take, seeing so called men carrying on like they are on the Sally Jesse Raphael show. This is suppose to be a business forum correct - not the healing network with Richard Simmons.

That was the point. But watching what’s her name go off was just too much fun to resist with the Limbaugh comment. She made it so easy - LOL!!! I can just see her dusting up a storm saying darn that FuwaFuwaUsagi, or baking really fast or whatever she does when a guy ticks her off- oops did it again didn't I.

FuwaFuwaUsagi

michael webster's picture

Oprah

Fuwa writes: "Now decades later the conversation goes on like the bloody Oprah show with so called men who need healing, space, time away, coming to terms…and they wonder why the do not have two nickels to rub together"

Now that is funny! 

Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"

Nick Bibby's picture

re: How to alienate the entire female readership of BMM: STEP 1

Ms. Boudica,

Generalities regarding people are usually wrong, so if you would, please look past the comment that offended you.

Frankly, it's too bad that many folks here feel the need to attend in Mardi Gras attire. If entered in the 'real', comments would be more thoughtful as well as more thought-filled. I wonder if any of our Zoros or Zorettes have the stuff to be seen at the cantina as they are.

Lots of good work has been done at BMM, so keep it goin. AND ...

NEVER UNDERESTIMATE THE POWER OF A PERSON TO SOMEDAY NOT MISTAKE THEIR MONITOR's REFLECTION AS A HALO.

--

Nick Bibby is an international franchise consultant and a program developer dedicated to excellence in entrepreneurship. 

Boudica Lawson's picture

Tequila in the cantina

I'd love to remove my own "mask of zorro" and slam some franchise tequila with you.
Same as I'd love to be able to discuss my own "franchising woes" publicly with clear reference to fact.
But the truth is that some FA's prevent zees from discussing absolutely anything with anyone that the zor doesnt approve of on pain of termination.

I don't think we can ever have "good franchising" while one party is gagged. The things that have happened in my franchise are unusual(if the reports on BMM can be taken as any kind of reference for normal) and one day I hope to be able to post under my real name a discussion that does not have to be so cryptic and lacking in fact. It is extremely frustrating to say the least to want to illustrate an argument with example and back it with logic when to do so could result in my immediate termination.

Until australian law has some kind of freedom of speech protection I don't see how one can perform that part of due diligence that involves talking with other franchisees with any degree of thoroughness.

One only needs to read the Australian senate inquiry into franchising report and the legal threats made by by one franchisor to his franchisee to see how real a problem this is.

It would be interesting to see if Australian posters on this site have a higher propenisty to anonymity than their American cousins.

FuwaFuwaUsagi's picture

Boudica...

And I quote myself thusly:

"If you can't figure out how to properly incentive a man to act like a man you are already beyond help."

I rest my case.

FuwaFuwaUsagi

Undeniable Truth of Life No. 24 via Rush Limbaugh: Feminism was established so as to allow unattractive women easier access to the mainstream of society

RichardSolomon's picture

Here's a hint

Don't let a chauvinist pig cause you to come unglued. If you wouldn't bark back at a dog in the street, you shouldn't respond to ridiculous statements of people who have no sensitivity regarding eqalitarian realities.

--

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

Boudica Lawson's picture

re: here's a hint

We will have to repent in this generation not merely for the hateful words and actions of the bad people but for the appalling silence of the good people.
-- Martin Luther King, Jr

Les Stewart's picture

A cogent argument for Infanticide

Fuwa,

I admit failing to exercise my maximizing utility laissez-faire imperative in not strangling my children as they slept. Or providing for them financially.

Still lots of time, though to teach them to trust or to have their altruism lobotomy.

Les Stewart MBA
FranchiseFool: Understanding Franchising

FuwaFuwaUsagi's picture

Exemption granted

Les, you are a Canadian, therefore you are exempted from my commentary. My comments are directed at U.S. citizens only. I am an ignorant American, I am not aware of the laws of other lands or social convention there of.

FuwaFuwaUsagi

Les Stewart's picture

the United States of Australia?

Fuwa,

My mistake. Didn't catch that your talk to Ray was a private conversation, though.

Wrapping yourself in a flag? Reminds me of Samuel Johnson's scoundrel quote. Please, whatever you do, don't drop your "stupid, in large number" handle. It shuts down debate by trying to invoke shame so well.

Exemption? Thanks, but no.

Les Stewart MBA
FranchiseFool: Understanding Franchising

FuwaFuwaUsagi's picture

Re: the United States of Australia?

Les, what you do not grasp is I find little merit in debate when I am so very correct in what I state. You can tell when I have doubt, I phrase it as a question, otherwise just study the fonts of wisdom and abide by them and you will find your lot in life so very much improved, women will find you more appealing, there will be a spring in your walk, and your dancing will improve.

At some point in life you become a man and you stand your ground, fight your own battles, and seek counsel from those wiser than you.

This fascination societies have with retarding maturation to hide unemployment is compelled by the law on unintended consequences in the form of making the general populace a bunch of sheep.

FuwaFuwaUsagi

"Never underestimate the power of stupid people in large numbers."

Les Stewart's picture

Thanks for the postscript consistency

Fuwa,

As for the rest of the boilerplate RandRant, I agree fully.

Les Stewart MBA
FranchiseFool: Understanding Franchising

FuwaFuwaUsagi's picture

Les: LOL!!! FuwaFuwaUsagi

Les:

LOL!!!

FuwaFuwaUsagi

RichardSolomon's picture

The real answer to your question is that we JDs really

have devised the perfect cure for franchise investors/FranWads. It is killer due diligence.

It's not our fault that FranWads won't pay a few thou for that, and would rather risk everything they have in the world on some cheap bozo nonsense hoax due diligence called - have a lawer read the FDD.

For a few thou they can avoid the bad risk investments and not go bankrupt. But we aint their baby sitters. If they want to shoot craps with everything they have in the world they have the perfect right to do so.

All these folks in here who got robbed didn't have to be in the fix they are in. BUT THINK OF THE LEGAL FEES THEY SAVED!

--

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: The real answer to your question is that we JDs really

But, on the other hand, it is those FRANwads who have made franchising so durable in our economy and who provide so much work for you JD's.

I'm sure that most attorneys, NOT Richard or Paul or Michael, of course, are thankful that the FRANwads have NOT invested in due diligence because -- think of all the LEGAL FEES that would be missed by the JD's if the 685,000 franchise attorneys listed in a GOOGLE search were deprived of "business" because franchising activitty was inhibited because of increasing good due diligence with experts like our "no BS" and honest Richard Solomon of Franchise Remedies.

michael webster's picture

Litigation versus Prevention

Guest writes: "But, on the other hand, it is those FRANwads who have made franchising so durable in our economy and who provide so much work for you JD's."

Richard will tell you the same thing as I will: we would much rather see people in our office before they buy and not after.

Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"

Re: Re:The real answer to your question is that we JDs really

Actually, if you use the ABA's Franchise Forum as a benchmark, there are more like 2,000+ framchise attorneys, but there might be work for less than 20% of them in any form of FT accounting. None the less, you're right, it is still a heard chasing a small flock of major events.

Franchisee and franchise attorney market equilibrium

Using your numbers, the math suggests the contrary - that there may be a nice equilibrium of attorneys and franchise buyers.

Here's why. If there are 650,000 franchisees, then assuming about 10% turnover a year, that's 65,000 franchisees buying in the year. For the 2,000 franchise attorneys, there are 32.5 franchisees per year or about 3 franchisees per month for each franchise attorney.

Using your math of 20% of franchises who need some sort of legal help, that means 6 franchisee clients per month.

That's assuming ALL franchise attorneys offer the service of helping buyers and franchisees - even Nixon Peabody and DLA Piper.

re: Franchisee and franchise attorney market equilibrium

Please understand that "FT" in the original comment means 'full time'.

Just because a ton of franchisees exist, there is not necessarily a ton of franchise work being done.

Now, please show me a lawyer, or any other type of office worker, who can do well on your '6' clients per month.

Your numbers don't work.

Juan F's picture

Franchise attorneys hard to find

Where do franchise buyers find comprehensive lists of these 2,000 franchise attorneys?

I don't see where the ABA site offers that specialty to search by. Business lawyer seems to be the closest thing.

OpenFran's picture

Attorney Research Ideas

Juan -

Here's a few ideas if you want to save some time and filter the attorney search down to a certain type of franchise opp or franchise offering:

For franchisee side attorneys - go to "www.OpenFran.org" and type in the franchise name or type of franchise, along with the word "litigation" or similar keywords.

Locate and download the registration doc from the list (or filter even more if needed). Then find the litigation disclosure section inside the PDF (Usually Item 3). Copy the name of the entity involved in the suit and then search Google/Yahoo/MSN, etc. for the specific case to find the attorney.

You can also find the section of former franchisees and their contact information inside most disclosure Docs. Contact information for the franchisee listed in the litigation section will sometimes be found in the terminated franchise listing later in the Doc (Usually Item 20). Call around to see who may have retained counsel...but not everyone will talk with you directly.

For franchisor side attorneys - you can search pretty much any franchisor on OpenFran.org and see who the representative attorney is since the transmission cover letter, filing forms, etc. are filled out by the franchisor's attorney. Type in the franchisor name or the type of franchise in the search and then open a "Notice Filing Form" to see the attorneys who represent the "big boys" that do not have to register.

Another idea is to search for independent franchise associations and check with who their legal counsel is or who they recommend. Many IndFA's will have a legal referral list. As of mid-2008, franchisors are required to disclose the contact information for IndFA's in their network.

Last - if you do not have the time or the inclination to do research/due diligence...there are several folks here on BMM who you can pay to expertly/efficiently do the research for you. Time is money.

If you weren't aware - OpenFran.org's search engine is very powerful and searches down to the keyword in over 300,000 franchise documents. OpenFran is also accepting publicly available franchising lawsuit filings and orders for the archive. Using OpenFran for your research will save you tons of time and money when conducting due diligence and other research.

BTW - OpenFran.org is now out of Beta - users can search and download free PDF's to their heart's content without needing an account. Although, registering for a free account is still suggested as you will be kept up-to-date on OpenFran developments and invited to access future power features before public release...as is donating as little as a $1 through PayPal whenever you do find OpenFran helpful.

Happy hunting.

Susan Maizner
Executive Director, The Open Franchise Foundation

"Are you part of the OpenFran Revolution?"

p: 480-264-0050
e: [email protected]
w: http://www.openfran.org

re OpenFran

Fine site, but I've yet to find Mr. Solomon listed anywhere there.

RichardSolomon's picture

Never mind the ABA. Go on any search egine and use the

search words franchise lawyer.

--

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

Search

Googling "franchise lawyer" calls up thousands of pages like this comment on franchise lawyer.

re Never mind the ABA. Go on any search egine and use the

Went there (Googled franchise lawyer) as you suggested Mr. Solomon and found that there were around 321,000 pages to look at. Just because there are thousands of pages there;s no connection with the number of lawyers found among them.

You show up on a page of those listings, but is that because Google has researched your work or ability or because your site got you there? The only thing said before is that the ABA has 2,000+ attorneys in the franchise forum and I doubt they are all 'clerks' as you put it.

RichardSolomon's picture

In an Internet search, the luminaries tend to show up on the

first few pages. The thousands of others are irrelevant to what a franchise investor is looking for.

You call them and ask (1) do you focus on pre investment franchise due diligence; and (2) do you vet the business issues as well as the legal issues? You only hire one who answers YES to BOTH those questions.

--

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

OpenFran's picture

Initial Research Starting Point

Openfran.org is a new/free option to obtain initial research information from disclosure documents without the need to directly contact the franchisor or attend a discovery day.

Locating and utilizing an experienced due diligence professional is key to making the correct decision.

Susan Maizner
Executive Director, The Open Franchise Foundation

"Are you part of the OpenFran Revolution?"

p: 480-264-0050
e: [email protected]
w: http://www.openfran.org

re In an Internet search, the luminaries tend to show up on the

the only illumination is in the formulation of the search engine's equation for the listing, Mr. Solomon. you don't know what you're talking about in the least - no surprise there.

don';t you find tireless self promotion on this site to be ultimately a little childish and embarrassing

RichardSolomon's picture

Those people are not franchise attorneys in the sense that

they are competent to assist franchise investors in pre investment due dilligence.

Almost all of them are just fillers out of forms; cut and paste contracts copiers.

Almmost none of them are litigators. Almost non of them ever has experienced having to wrestle with any real franchise issue. They are an army of clerks.

--

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

RichardSolomon's picture

There is no excuse for franchise investors being ripped off -

none whatsoever.

Hopefully this web site will help to educate the franchise investing public to the need for real expertise in sorting out investment options.

The staggering investment losses are disgusting and unnecessary!

--

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

Franchises, Small Business & lawyers

Richard is absolutely correct. Don't disparage the messenger. I'm a business transactions lawyer who has done a lot of commercial lending and finance work. I can tell you that many franchisees and small business owners nickel and dime themselves into bankruptcy. They listen to franchisors, lending officers, SBA Brokers, SBA BDOs, friends and others when conducting their due diligence. Most often, they are advised to take the cheap route and avoid legal fees at all costs. That advice is most often to the franchisee and small business owner's detriment. The other problem is that some franchisees/Small Bus Owners fail to do any due diligence on their lawyer to see if he/she has the requisite experience to handle franchisee/small business due diligence issues. Believe me, there is usually a lot of folks who stand to make money from the franchisee's decision who don't want a close examination of the deal.

HIRE A LAWYER

if you're planning to invest money in any franchise. Your lawyer works for you and he/she will give you the knowledge you need to make the right decision and will tell you EXACTLY what your obligations are based on the contract. I'm not a lawyer, just someone who decided to take the "cheap" way out because the explanations all sounded fair and reasonable.

I learned my lesson during the period leading up to the decision to close - when I realized they all had me by the short hairs. Each of those now creditors wanted me to take the cheap way out and "work with them". Instead I hired a good lawyer who used his knowledge of the law and our system to save me from hundreds of thousands of dollars in debt and allowed me to make a fresh start.

Barbara Jorgensen's picture

Richard, BMM has been very valuble

to those who are in the franchising world.  I wish I discovered BMM before we went into businesss. 

It has been my teacher for over a year now.  Lawyers like you are valuble. (Michael, Paul and Howard.)  I am sure BMM has helped many people.  Hopefully people interested in franchising will discover BMM and seek advice from you.   

RichardSolomon's picture

Sorry, but I disagree. There is even less room for excuses

when the very thinly capitalized buy cheaper franchises without availing themselves of competent pre investment due diligence.

The reasons for this include that franchise opportunities addressed to the thinly capitalized are more likely to be scams than those addressed to the well heeled.

Being less than wealthy is not a reason respectable in law or logic for being negligent with risks assumption.

If a marginal franchise investor can avoid a scam for just a few thousand dollars, and in so doing also become more knowledgeable regarding how to do it without a franchise (as most of the lower initial cost franchises are more easily done with a little self help and nothing more - think, for example something like Party Pump Up, 1-800-Got Junk, and any dog poop cleaning deal or yard maintenance deal), then he gets even more bang for his buck in the competent due diligence approach.

There is no case to be made for low cap franchisees not being pushed into spending the money for good killer due diligence. I have shown dozens of low cap candidates how to do the same business they were looking at without having to buy a franchise. Just about all of them are still in business and enjoying much more success than they ever could have by buying the deal they walked in with.

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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

Les Stewart's picture

If Killer DD could prevent Opportunism, the Value is there

Richard,

As one U.S. lawyer among hundreds of thousands, your efforts are commendable.

However, in the vast, vast majority of evaluations of franchises (since you have not been cloned), the pushing the idea that pre-sale vetting can solve even a tiny part of the problem, is bordering on religious ideology.

Until post-sale opportunism is solved, trumpeting Killer DD is just not just raising false hope but worse: offering up a known impotent solution increases systemic investing risk by underepresenting the risks of losing it all once you sign.

  • Sorry: It's not enough to say "Well the DD operation was a success but the patient died in post-op." Not for most of us, anyway.

Suggesting pre-sale work will prevent even a slight majority of problems, post-sale, is a huge disservice to most potential franchisees. The abuse will just become more disguised or shift, even if Killer DD were to cover 100% of DD.

However, continue to feel free to denigrate the intelligence and work ethic of franchisees, though.

Les Stewart MBA
FranchiseFool: Understanding Franchising

RichardSolomon's picture

Les - what makes you think that I don't vet the post execution

issues as part of due diligence. I'm not a one trick pony, but, like you, if I didn't have a strong belief system I wouldn't see a purpose to all my ranting and raving about franchising risks.

You might think of some of the things you and I have in common. Would you be in here for this long just bercause you're pissed off?

Michael correctly pointed out in here a long time ago that expectations of substantial revenue for pricier killer pre investment due diligence are not realistic. There has to be an educational campaign that is carried out without expectation of immediate reward if any long term good is to come of any of this.

I don't have an SJ following my name, but I do understand the meaning of sacrificial commitment. Speaking of which, Mike Webster is on to a new approach about all of this that ought to make its debut soon. I won't steal his thunder by making any announcements, but stay tuned, my friend. Paul Steinberg and I are definitely going to support Mike in this effort, even though we are all certain that it is unlikely to pay for even one evening of dinner and wine.

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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

Les Stewart's picture

Monsignori Richard & Paul?

I look forward to Michael's contributions. He never fails to surprise.

Les Stewart MBA
FranchiseFool: Understanding Franchising

Howard R. Morrill's picture

Is there a market for Killer DD?

Most franchise offerings I have seen can and should be rejected out of hand after a quick review and interview with the client, the total time invested amounting to two or three hours usually. People who "get it" don't need Killer DD because they already see why they won't buy the franchise. In my experience, people who are determined to buy in the face of obvious warnings and good advice won't seek Killer DD because they aren't interested in having a lawyer cast doubt on their dreams.

Barbara Jorgensen's picture

I heard a zee signed because someone told them

not to listen to lawyers because they are negative. Their lawyer told them not to do it.  I wish I had that lawyer. They are in the "Let's Be Positive," fitness business where zee's blood is spread all over the country. I wish I had their lawyer.  If my lawyer told me an absolute no, I would listen.

I believe there is a difference between reality and being negative.  I love the saying be gentle as a dove but skrewed as a serpent.

FuwaFuwaUsagi's picture

Re: Is there a market for Killer DD?

Howard is right. I have vetted dozens of offering for people, they fall through fast. The biggest obstacles is getting people to understand what they are trying to achieve, what it will take to take achieve their goals, and setting metrics around those goals. Between the human analysis and goal setting and potentially a cursory examination of the concepts most people's needs can be served in a matter of hours.

Beyond this is the due diligence frontier, I suspect very few who actually even consider franchising ever need to explore this frontier.

FuwaFuwaUsagi

"Never underestimate the power of stupid people in large numbers."

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