Exposed by Not Having Earnings Claims? Then Have Salespersons Write Records
I once interviewed a spokesperson for the Franchise Trade Commission to ask what their most frequent franchisee complaint was. He told me that secret earnings claims was at the heart of most of the cases they looked into. Rupert Barkoff, a past chair of the American Bar Association’s Forum on Franchising and a recognized leader of franchise attorneys, agrees. Sadly, few franchisors provide earnings claims. To that end, Barkoff notes in a recent column, “One franchisee-oriented attorney once said to me, ‘Show me a franchise disclosure document that does not have an earnings claim, and you have shown me a lawsuit.’
Franchise buyers are no fools.
Buyers understand that before they buy a business, they better have a peg on what sort of profits to expect. The ravenous demand for such basic information is what pushes sales persons to secretly supply hints. After all, many are hungry to receive a commission for selling a franchise.
The Atlanta-based partner of law-firm Kilpatrick Stockton LLP advises franchisors what to do about this major flaw in a franchisor’s armor. He cites Australia’s Muffin Break case in which an unseasoned sales person gave oral expectations off the record on what a typical franchise could do. Like most, the franchising firm had no earnings claims and had customary wavers in their disclosure document that such outside representations were null and void. The trial judge didn't buy the disclaimers and ruled in favor of the franchise owner.
Barkoff advises franchisors on how to protect themselves:
- Train the sales force on what can and cannot be stated to a buyer, "especially if there is no financial performance representation (FPR) in the document"
- Keep records of meetings and telephone conversations between franchisees and all franchisor sales representatives for your protection
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- Franchise topic:
I do believe the good franchise systems will prevail and bad ones will fail. The bad one's do give false earning claims and their sales people are only out for the commission.
There is no difference when a bad loan officer puts numbers in a application to qualify a person for a house to just get the the loan to go through and knows all along the person can't afford the house.
In franchising many start their empires getting anyone to buy their system. They do not care about their zees. They just want to get the damn franchise going and get the victims money to build their empire. They need to be stopped because they hurt thousands of people because of greed.
If what you say is true I hope many bad zors will read what you say and change their evil ways and stop hurting the hard working people of our country, (And all over the world.)
The only way a person can sell a franchise is giving people earnings claims because the bottom line is people need to know how other's in the system are doing. No one would buy a franchise because of the FDD. That is why the law does say that sales people need to have written documentation of their oral representation of how much a store is making.
Even that isn't enough because what if a club or store that is supposely doing well sold memberships for hardly anything to get to the high numbers of memberships. What if that supposely club owner isn't the real club owner but the son of the owner and he didn't have to pay for anything? Non-disclosure is misrepresentation. If they use a club or store as an example they need to tell the whole story. Fabrication of numbers is easily done as we found out while we were in business.
Simple due diligence does not work. There are different ways to fool people. The scammers know all the tricks. If you are not that kind of person you don't know all the ways to skin a cat. The con artist mind is brilliant. They have had alot of practice. When the honest person only knows one way to make money and that is hard work, great sacrafice and diligently getting up every morning and doing what they have to do to survive.
Legal Eagles:
Is attorney Barkoff correct when he says that financial performance representations in the franchise disclosure document limits the franchisors liability?
Most franchisors (non-legal backgrounds) say the opposite. They are afraid to put earnings claims in the disclosure document for fear that their firm stake in the sand is easily sued. e.g. "My franchisor wrote in the disclosure document that the average unit makes $500k but I only made $250k. He's a scam artist."
Les Stewart MBA FranchiseFool :: WikidFranchise
Les Stewart MBA FranchiseFool :: WikidFranchise
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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
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