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Franchise Forces
Miscellaneous discussions about issues in franchising, moderated by our Kahuna, Mr. Joel Libava, Mr. FranPro.
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share franchise news, to prosper and amuse
Something To Fill the Pigeonhole?
"The legal requirements to become a franchisor in the United States are very low. All a company needs to have is a disclosure document and all a company needs to do is present those documents to a prospective franchisee at the appropriate time. No regulator ever reviews those documents in most of the United States. Even where they do, the role of the regulator is to ensure that the franchisor is in compliance with the law, not to ensure that the franchisor’s underlying business is franchisable or even viable" - Michael Seid Does that mean that the FTC just wants to make sure that there is a document filed in a standard format for specific state's that want it in their pigeonhole? And that no government entity pays attention to what it contains -- just so it's in the right format? Even if that's the case, it seems to me that there's still checks and balances. When the court system pulls the disclosure document out for a franchise owner suing the franchiser, if the information in the disclosure document can be proven bogus, the franchiser can lose in court, right?Franchisee Due Diligence
Michael Seid is a well respected franchisor consultant, but I am afraid his advice for due diligence for a prospective franchisee does not measure up to his deserved reputation.
1. In a nutshell, Mr. Seid recommends that if the franchisor owners have received a designation from the IFA, then that should stand them in good stead with a prospective franchisee. Whatever merit there is to the IFA's designation, the IFA is a pro franchisor association whose recommendations should mean very little to the prospective franchisee. The IFA is a fine organization for promoting franchisor's interests.
2. While the background of the individuals in the franchisor are very important, there are other more important items in the UFOC to review: territory, earnings, build-out costs, litigation restrictions, vendor kick backs, just to name a view. All of these important considerations are in the UFOC. UFOC's may be purchased or reviewed online at the california corporations website. Until franchisees learn to read these UFOCs, ask questions, and turn down dubious enterprises we will continue to have dubious franchise systems. If you don't ask, you may pay a heavy price.
Michael Webster PhD LLB Psychology of Compliance and Due Diligence Law www.bizop.ca
Don Borodian
One of the ironies in Paul's original post, is the Don Borodian was one of the individuals who helped found the AAFD.
Michael Webster PhD LLB Psychology of Compliance and Due Diligence Law www.bizop.ca
Brokers/Consultants
Michael,
Howie Bassuk, a leading franchise expert always told me that Michael Seid actually likes some franchise consultants/brokers, and as a matter of fact, likes our group, Frannet, a lot.
I have been if franchising for 15 years, including the last 5.5 as a "consultant", helping LOCAL area residents discover appropriate opportunities in the wide wide world of franchising, and then teaching them safe ways to do the corect and neccesary research.
I feel and know in my heart that I provide an ethical, and much needed service for the average consumer, who knows only of expensive and labor intensive food franchises,
and not much more than that. I match those seeking out opportunities with the right ones for them, putting their interests before mine.
I care! AND since I am locally based, and meet with folks face to face, I feel that I really have skin in the game. After all, they are my neighbors, and I need and want them to be successful. There are unethical businesspeople in any business, and also folks with no industry experience in businesses thay should not be in.
{Like becoming a franchise consultant, knowing nothing about small business or franchising}
The issue I have with you is that I have never seen you write anything positive about my little corner of the franchise world.
Do you think it is possible that we "consultants" do a great job, and help our industry grow? {Your industry also}
Franpro
New topic! Religion???
This paragraph is intended for all of the franchise companies that insist on putting a religious statement on their websites, brochures, and promotional materials.
Personally, I don't care what religion you are. As a matter of fact, I really don't care what religion you are. My point being:
Why must you insist on putting your religious views on your company's electronic and printed marketing materials. Do you only want franchisees and clients that share your beliefs, and specific religion? Must they adhere to YOUR principles, or be terminated?
What is the real reason you feel that your religious beliefs must be put in other's faces?
Do you think it will help you get more franchisees, or clients?
To me, and some of the folks that I have worked with in the past, it is a real turn off.
I am sure that there are some people out there who would be attracted to a company that wears it's religious "values" on it's shirtsleeves. {Or websites}.
I bring this up because I have just started working with a franchise that does put a religious statement on their website, and when I saw it, I had already discussed the "opportunity" with a couple of my clients. They were turned off, as was I.
We can all agree to disagree, but for me, I would prefer to keep business business, and religion, religion.
Franpro
Lowest costing franchises
Do any of you know of any list out there that shows the lowest costing franchises? Any of you have thoughts on low-cost franchises? Any inherit problems with franchises that have very low start-up investments?
I would greatly appreciate any ideas from the franchise experts here or from owners with experiences on the matter.
suzie
Praise For America's UFOC
I cannot resist sharing a conversation I had this morning with a franchise consultant in Europe. Browsing through an online UFOC and our many franchisee remarks on Blue MauMau, a consultant friend (let's call him Mr. Europe) gave advice on how to avoid buying a bad franchise:There was a pause as Mr. Europe realized that none of his clients are able to know who past franchisees are, let alone talk to them. Few countries in the world require franchise disclosure documents. Then came a palpable shift from franchising advice to awe...
Then the reality of the here and now returned...IFA Ain't Perfect But It's Something
My understanding is that the IFA will not let in all. Here's an IFA application form that asks for UFOC, financial statement, litigation history, units, and operations information. It seems that some riff are not qualified enough to hang out with the raff, even if they do have a few thousand for membership.
Being a member of the IFA doesn't mean that one is a good franchiser, but it does show a minimal threshhold of franchise abilities.
Mr. Seid's comments seem reasonable. He does afterall acknowledge a certain bias from sitting on the IFA's board and being its past chair.
Regards,
No-Friend-of-the-IFA
Brokers
I like ethical brokers and always have. They serve a solid purpose in franchising. While I truly believe that it is as productive from a growth point of view and certainly from a financial point of view to establish an inhouse sales process, in certain situations MSA does recomend broker networks. Howie Bassuk is correct. He and I are friends and I respect him quite a bit. There are several other brokerages I also speak highly of. However, several I don't and they spoil the image of your "corner of the world". However, I would prefer brokers call themselves brokers and not consultants. That is a problem I think brokers have when they feel the need to use other terms to describe what they do. MichaelThe IFA
Michael - thank you for the complement. Let me take exception to just one of your statements. The IFA is made up of franchisors, franchisees and suppliers. Indeed, the current chairman of the IFA is a franchisee and I serve on the board with many other franchisees also. The IFA is a pro-franchising organization and your assertions about our views are more than a bit off. I don't speak for the IFA of course, but as a board member, a former chair of the supplier forum and also a past franchisor and franchisee and also representing many franchisors and franchisees in our practice, I cn assure you that being involved in the IFA has significant meaning and is a fine organization for promoting the interests of not only franchisors but also franchisees and suppliers. Franchising for Dummies 2nd edition will be out later this month. Perhaps you will pick up a copy and get a clearer understanding. All of Dave Thomas's and my proceeds from the book go directly to charity so this is not a blatant push to sell books. Just a place where you might want to get some good information. Michael SeidFTC
Franchisors are regulated at the Federal and State level. You are correct that no one at the FTC reviews a UFOC unless their is a complaint or an action they are taking. You are incorrect in that their is no federal right of private action under the FTC rule. However, under the NASAA rules, regulators do review and approve the franchise circulars a the state level of the regulation states. You may have a right of private action under those rules. There are countless checks and balances on a franchisor - the courts are certainly one but more important is the marketplace. Badly performing franchsiors do not get good reviews from their existing franchisees and that dramatically impacts sales of new franchises. I hope this helps Michael SeidContacting Ex-franchisees
Hi,
I am a newbie in this forum, and really appreciate all of good info I am finding here!
I am in my "due diligence" phase, evaluating 4 franchise opportunities.
I have tried to contact the ex-franchisees listed in the UFOC's (2 are fairly new and do not have any ex's yet).
Out of the 6 ex-franchisees I tried to contact:
4 - numbers listed were disconnected with no further information available
1 - was answered by a child, when a grown up did get on the phone she hung up on me.
1 - I left a message, but have not received any response. (At this point I am not holding my breath)
There is so much information coming my way via email, web, phone calls, etc that it is pretty intimidating.
Two quick questions:
Where else besides the UFOC can I find financial info/performance of a franchisor?
Looks like I should find a lawyer or CPA prior to signing any contracts... any recommendations?
Again - I appreciate all assistance!
Sheila
Easier Recruiting
Franchise owners have a tough time hiring and keeping good talent. Owners of businesses with strong religious faith are often plugged into their local congregation and can strongly benefit from such church/synagogue/mosque/temple networks. Being public about their religion, praying in the morning, and declaring it in their stationary may be a turn-off to those not of their faith, but it can be very attractive in creating good will to the youth and other members within their congregation in whom they would like to recruit. It is a good way to hire young people of similar background and be able to keep them longer for a small business owner.
Growing up, there were many of my faith that recruited amongst our youth. Our social, economic and religious family background were similar. We trusted employers we knew in church better, and they trusted their own better as well. The small business owners may not be cognizant of such benefits. They may not put two and two together. They just know that they are "blessed" in their business for being vocal about their beliefs.
The customer benefits in that he has a group of employees that are quite cohesive. They may feel disadvantaged in being an "outsider", and might be harder for the customer to relate to the company and its services. And some customers may decide that they simply don't want to associate with such a religion, no matter how good the store is.
Sincerely,
Religious Ralph
Clarification of "Lowest Costing"
When you say "lowest costing" are you refering to:
Why are you particularly interested in "Lowest Costing" versus "Best Return on Investment"?
Are looking to fund the venture out of current finances or will you also be securing additional investment captial?
The answers to these questions will help provide you with the information that you are looking for.
Believe & Succeed,
FranSynergy
Synergizing Franchising 1 Franchisee at a time!
www.fransynergy.com
Actually, praise for California
California dept of corporations did all of us a huge benefit by having these posted online, but only franchisors offering in California have to disclose online.It raises the question: Why won't the FTC require this?
And if the IFA is really in favor of disclosure as a remedy for all ills, why doesn't the IFA push for adoption of the California model nationwide?
Steve, Matt: the Gubernator awaits your call!
In your face Faith and Business
Dear FranPro
You raise a good topic and thanks for the challenge.
Personally I am OK with mixing the two. Faith-based people believe their faith is supposed to be acted upon in business and personal life, so for a faith-based person their is simply no separation between faith and business anyway. That isn't to say we are angels, because we can be jerks too. A true faith-based person/organization will recognize their jerkiness and put in structures (like personal and corporate accountability structures and values statements) to be responsible for their potential jerkiness.
However, I believe your point isn't so much separating the two as it is boldly proclaiming religious affiliations.
My reason for posting our company's guiding principles (all based on timeless faith-based principles) on my website is very simple. I will define it in two words. Accountability and Fit. We want to be held accountable by clients and potential clients to walk the talk. I put it out there not to evangelize, prosletize (sp?), or create controversy, but to be held accountable for these words.
You can find them here
http://www.franchiseperformancegroup.com/www/docs/107
The second is fit.
If by speaking and posting corporate values and principles helps potential clients determine the Franchise Performance Group is a poor fit for their organization, I believe we are both served. If a potential clients reads our values and shares our ideals and feels like we are the best firm to help them with recruit more and better franchisees and help franchisees perform at higher levels, then again we are both served.
Thanks for sharing.
Joe Mathews
Franchise Performance Group
Co-author Street Smart Franchising
Ya Got me Thinking......
Do US Franchisors that expand overseas use the lack of disclosure regulations in foreign countries to their advantage? Or do they play straight up and voluntarily provide franchise prospects with the same information they are REQUIRED to provide us here in the US? Do they provide the same contractual protections to our oversea counterparts? If so, KUDOS but if not, that fact alone should demonstrate the NEED for regulations. Reality is that some companies have the ethical fortitude to do right because it's the right thing to do and others won't................because they don't 'have to'.IFA Membership
That is true, the IFA is selective. In fact, it appears now that Mr. Bororian is in federal prison his company has been dropped from the IFA. Of course, Sona is still being hawked on the website and the head of the IFA is still on the Rosenberg Center board with Mr. Amos, but then Mr. Amos isn't serving federal time (heck, there isn't even an indictment, so he's good enough for the IFA). My understanding is that Amos even gave a presentation on ethics (I kid you not!) at the IFA conference and when asked about the Maryland cease-and-desist he began his answer by talking about praying. Personally I was taught that admission and contrition were prerequisites to redemption, but maybe Mr. Amos went to a different church. --Paul Steinberg, pwsteinberg@msn.comCorrection
I was never chair of the IFA. I was however chair of the IFA's professional group - the Supplier Forum when it was known as the Council of Franchise Suppliers. I did not mean when I logged on tonight to take exceptions to so many of the posts made here. Some of the posters I know and some I don't. We take becoming a member of the IFA very seriously and not every franchisor or supplier is able to become or stay a member. We have a Code of Ethics which has meaning to us and to all the members. The association coducts some of the best educational courses and seminars on franchising and all of those meetings deal with best practices in operating franchise systems. There is a real basis for my bias that goes far beyond having the honor of being elected to the board. In a few weeks hundreds of us will be up on Capital Hill meeting with members of congress. In each of my delegations in the past I went to members of the Senate and the house accompanied by franchisors, franchisees and suppliers and each spoke openly and honestly about the importance of the IFA and its representation of the importance of franchising. I encourage all of you to attend with me the meetings in Washington and get a good understanding why we have such a large membership of not just franchisors but thousands of franchisees as well. Michael SeidItem 1 & 2 Disclosure
I want to return to the theme of the Michael Sied's original post, because I think it deserves attention. He suggests that prospective franchisees should look for executive teams who are dedicated and experienced franchisors. Item 1 and 2 of the UFOC disclose important details about the history of the business and who are running the franchisor.But, I meet a number of franchisees who don't even review these disclosures believing incorrectly that the document is too legal for them to understand. This is a long standing problem for both franchisees and franchsiors.
Ideally, a prospective franchisee should look at, in item 1 & 2, these factors: a) length of time in this busines, b) other complementary businesses, c) turnover in executives.
One good aspect of caleasi, is that UFOC's three years old are available so that you can compare how the franchisor's executives have changed. The executive team should be googled over a period of at least 30 days, in order to develop a big picture.
Now to Michael Seid's suggestion: look to see if the executive team has taken any IFA courses or acheived a certain designation. My one concern is that this type of due diligence is both too simple and too complex. It is too simple to rely upon any organization to provide a blessing; it is too complex because it is hard to evaluate the quality and relevance of education programs in general. But would it be a factor in my due diligence -sure, one of many with respect to items 1 and 2.
Michael Webster PhD LLB Psychology of Compliance and Due Diligence Law www.bizop.ca
Using the word "Broker"
To me, a broker "sells". Think of the "Business Broker". Does a business broker really get to know a client's personality traits, and their real needs and wants etc? Or, as I now suggest, does a business broker try to match buyer and seller, and pretty much stop there. A true "consultant", like myself, uses several different proven tools, including an in depth, {but not complicated for the client} profile. A LOCAL consultant like myself, knows the market, knows what works, and what doesn't, and does strategic work. Brokers sell. Consultants, like myself, strategically match and place their folks in opportunties that are right for the client and right for the market. I do not "sell" franchises. Howie does speak highly of you, and I personally appreciate you making a positive statement about our little corner of the industry. We both know who the good networks are. And which networks are not, and should be driven out of our "corner". More positive comments about us in future books and in future opinions would be appreciated, and welcomed. Thanx! FranproBe careful of Item 20, Sheila
I am the poster who believes that Item 20 of the UFOC is just an artifice that permits franchisors to sell their franchises to the public at any degree of risk of failure. The SBA Franchise Registry bears franchises that have very high failure rates of first generation franchisees. The UFOC actually diverts the attention of franchisees from determining the real and actual odds of success or failure of the investment, as determined by the success or failure of current and ex-franchisees of the franchisor. This information is in the possession of the franchisor but the UFOC mandates that you try to obtain this information through the contact of references provided in the UFOC. This, of course, is phoney baloney, but it does protect the franchisor who is going to require that you sign a contract that indicates that you understand that you are making the investment at 100% risk of failure, and that the franchisor has not promised you success. If your due diligence efforts on Item 20 have been inadequate or adequate, it doesn't really matter, because once you sign the contract, the franchisor, generally, cannot be charged with fraudulent inducement to contract through obscuring the risk of the investment. Since you are researching franchises, I assume that you think a franchise is an answer to producing income and not just an investment vehicle in which you are using your discretionary funds to buy the investment. The majority of franchises are not good investment vehicles but some franchises do provide a job and an opportunity for profits. A great many franchised business opportunities are just lousy jobs with low pay that you are trapped in for the term of the contract ---10 years or more, depending on the franchisor. If you fail to complete the term because you fail to thrive, you will lose your investment or lose money on your investment, one of the two. If you are doing you own research on risk of reward or success, you can read all transfers in the UFOC as failures for the transferor and all terminations as failures and all reacquisitions as failures. If you are talking to current franchisees, you must remember that it is in the contract that they will not harm the brand and ask yourself why these franchisees would talk to you at all. They have no legal obligation to do so. The FTC in its guide warned that franchisors sometimes pay franchisees for good references. If you settle on one franchise that you really think you would like to buy, the best buy in franchising is a $1,000 due diligence consult with Richard Solomon. Franchise Remedies.Com concerning ONLY the negatives of the investment. I don't know Richard, except through this forum, but he can be trusted to tell you the negatives, if there are negatives, and this will save you from the hell of investing in a pig or a dog, and we have a growing population of pigs and dogs in the franchise community and on the SBA Franchise Registry.Unreachable franchisees
Sheila,
I am a pro-franchise guy. Some in this forum have been franchise owners, and for reasons they won't disclose, besides blaming the franchisors, are anti-franchise.
Positives and negatives are important when weighing in an investment in a business of your own. My philosophy is to keep things simple, to the point, and move on. Sheila, in this particular case, I reccomend moving on. There are over 3,000 franchises available. Keep trying to find one suitable, and one in which you can talk to 10-15 franchise owners, and even meet some of them face to face.
Franpro
The Franchise King Blog
Lowest Total Investment
I mean lowest total investment. However, I must say that I like your list, especially the last point - a combined total of all the above.
Wish there was also a franchise list sorted by highest return.
suzie
Internet UFOCs Free and Speedy
The California Department of Corporations should indeed be praised for providing UFOCs FREE and at the speed of an electron...
I believe a franchise buyer will have to pay the price of slow mail to the other states that require registration of disclosure documents.
Right On! Paul Steinberg California Model is Excellent
I think an IFA push for adoption of the California model nationwide would be in order. Somewhat on the same subject, do you believe that the new Federal Rule that requires franchisors to indicate whether or not confidentiality agreements were obtained from ex-franchisees will promote more honest discussion by ex-franchisees =====or am I reading this wrong?Mud Slinging
A lot of us here are franchise owners and not franchiser insiders. We simply know our shops and networks. Your comment throws around accusations and names without any sense of context for most of us. Since you brought it up, I'd really like to hear the full story with references (links) -- please. Right now your references just do not mean much to me. After a Google search, I think what I'm hearing is:
I bet I'm not alone in wanting to know where you are coming from by reading your background. Might I suggest you register as a member and fill out the user info section?
Craig
There maybe something to your sarcastic tone!
In the August issue of Franchise Times, Janet Sparks tells the story of Mike Rubin a former franchisee of Sona Medspa. Mike is also a former senior executive producer of NBC News, and currently vice president of programming for MSNBC. Janet quoted Rubin as saying, “To me, Jim Amos is nothing more than a carnival barker.”
Rubin alleges he lost almost a million dollars buying into the franchise and he plans to fight it out with the franchisor and its equity investors (Carousel) over his financial losses.
Rubin was also quoted as saying, “This is not just about the money. It’s also about the morals.”
Sparks goes on to write that several states have launched investigations into Sona Medspa and that David Boies has joined Rubin’s legal team, Boies, is well known as the attorney who successfully represented the Justice Department against Microsoft.
Jim Coen, Franchise Perfection, 877-469-3002, jim@franchiseperfection.com, www.franchiseperfection.com
20 Must Ask Questions Before Buying a Franchise
There’s no shortage of opinions on how to best evaluate a franchise opportunity. Simply ask anyone who has ever considered acquiring a franchise. The spouse has an opinion, as do the kids, the in-laws, the out-laws, the neighbor, the family pet, lets not leave out the attorney, the accountant, the banker, the butcher, the baker and the candlestick maker. There are countless books, magazine and eZine articles titled the ‘The 20 Must Ask Questions before buying a Franchise’. The IFA, CFA, AAFD, SBA, AFA, FTC, and numerous other organizations and associations have all developed and produced documentation to aide in the evaluation of a Franchise Opportunity.
Mr. Seid, stated: “…more important is the marketplace. Badly performing franchisors do not get good reviews from their existing franchisees and that dramatically impacts sales of new franchises”. I believe that sums it up pretty accurately. I’ve instructed numerous ‘Franchise Sales People’ that we don’t sell franchises, franchisees sell franchises. Our job is to facilitate the evaluation process. To assist the franchise prospect in the discovery of the information which they need to make an informed, educated decision, while gathering the information we need to make a good selection.
To paraphrase a statement made popular by Dr. Phil, “The best predictor of future performance, is past performance”. If a significant percentage of franchisees within a concept are unhappy, not achieving the desired result, failing to show a profit, feel unsupported, etc… there’s a good chance that a new franchisee coming into that system will soon feel the same way. In evaluating the attitude of the franchisee relative to the franchisor, it’s important that the franchise prospect understand where the franchisee is in the Franchise Life Cycle (FLC) (see: http://www.seda.org.za/content.asp?subId=492 )
As franchise professionals I believe it is our responsibility to educate Prospective Franchisors, properly on the viability/feasibility of their concept. A lot of focus is paid to the success rate of franchising in general, but I believe too little is paid to the failure rate of franchisors. The failure rate for a new franchisor closely mirrors the failure rates tossed around for any new business. If we’re advising a franchise prospect about investing into a new franchise concept the discussion and the due-diligence is very different than if were advising regarding an established concept.
Neither Ray Kroc nor Col. Harland Sanders had glowing academic histories or high school diplomas. However, I don’t believe it’s a question of will those franchise concepts work, but much more a question of “will the Prospective Franchisee work, within that concept”. So in that example the education of the principles has little to do with the evaluation of the concept. With a new concept the education and experience of the principles should be a lightly weighted factor, but not a determining factor. Similarly, belonging to the IFA is a positive. However, it should not a determining factor. Many new Franchisors simply chose to allocate their limited funds in other directions.
If a prospective franchisee were to only acquire a franchise which everyone agreed s/he should do, AND the franchisor could answer every question honestly with the “ideal” response we would not be having this discussion. Franchising would not exist. Like any business or investment there are certain inherent risks. I believe that as stated previously we help introduce solid, well funded, well planned franchise concepts, and discourage concepts which lack the basic traits of a solid franchisable concept. I believe we encourage franchisors to continue the trend of proper franchise selection. I believe we encourage prospective franchisees to evaluate the opportunity in its totality. Weighing all of the pro’s and con’s of what the franchisor and the prospective franchise bring to the relationship. I believe the best advice which can be given to any prospective franchisee is to talk to franchisees, talk to more franchisees, and finally talk to a few more franchisees. That’s just my opinion! What’s yours?
Believe & Succeed,
FranSynergy
Synergizing Franchising 1 Franchisee at a time!
www.fransynergy.com
Seid for President (though he's wrong about Sparks)
I would support Michael Seid for IFA President. Not because I am normally in agreement with him, but because of his approach to franchise brokers. Seid percieves that it is in his best interest as a broker to ensure that prospective customers believe that his industry is both ethical and adds value. This economic self-interest is a powerful incentive, and while to some extent the IFA has come round to this view (see their cautionary statements on their website and in their literature), I would suggest that Seid would actually be tougher on scuzzy franchisors--not out of any moral view, but because of enlightened self-interest. When you get down to it, pecuniary interest can be a powerful tool for any industry SRO. Seid has a way too rosy view of the IFA, but he does believe what he says. I disagree with Seid in terms of his use of IFA or CFE as a screening tool, but I do think that if the IFA was as harsh on bad franchisors as Seid is on bad franchise brokers the "IFA Member" designation would actually mean something. On lawyer members of ABA: As you may know if you've been reading the papers lately, a lot of lawyers won't join or are even cancelling their ABA memberships because of the ABA's political activism. Even lawyers who may personally agree with ABA's political views feel that it is inappropriate for a bar association to become an arm of the DNC. So a lawyer's "membership" in the ABA only means that they have sent in a check and the use of ABA membership as a screening device is meaningless; some lawyers use ABA section membership simply as a marketing tool for client prospects. Also, while the ABA Forum on Franchising long ago decided to stay neutral in the franchise regulation debate (and kudos to FoF for that), the only ABA position on franchise regulation is so pro-franchisor that it reads like an IFA press release: www.ftc.gov/bcp/rulemaking/franchise/comments/comment025.htm And I will leave it to Michael Webster to point out the irony of the ABA position on franchising being the political reverse of their customary left-wing stance on virtually everything else. As to Janet Sparks: Remember that most of Franchise Times is a feel-good puff piece. The purpose of Sparks' column is to have some spicy food for thought, and that generally means going contra to the prevailing wind. Her column and Zeidman's column are why I not only read FT but give a gift subscription to my new franchisee clients. --Paul Steinberg, pwsteinberg@msn.comBroker/Consultant Semantics
My definition of a broker is: a businessperson who buys or sells for another in exchange for a commission.
My definition of a consultant is: a party engaged to give professional advice or services for a fee, but not as an employee of the party that engages him or her.
Franpro stated: “Consultants, like myself, strategically match and place their folks in opportunities that are right for the client and right for the market. I do not "sell" franchises.”
Yet you are paid by the franchisor a substantial portion of the franchise fee as a commission and in some cases you get an ongoing share of the royalty fee for making a successful franchise referral?
You are not paid a fee by your “clients” as a consultant.
Some people in franchising find this fact to be disingenuous regarding brokers/consultants. Like anything else there are good brokers/consultants and bad brokers/consultants.
Similar to Franpro, I make an effort to help people find the next best step in fulfilling their goals. I work with people to help them find the franchise or business opportunity that fits their skills, experience, lifestyle and financial situation.
I work diligently to help people validate the opportunity they are investigating and make sure that their next move is with their eyes wide open.
That is what a good broker/consultant does whatever semantics you choose.
Jim Coen, Franchise Perfection, 877-469-3002, jim@franchiseperfection.com, www.franchiseperfetion.com
Confusing Terms
Franpro writes: "Some in this forum have been franchise owners, and for reasons they won't disclose, besides blaming the franchisors, are anti-franchise."
I suspect that what broker Franpro means in his term "anti-franchise" is that some members here aren't particularly keen on brokers. Some feel strongly that brokers are set up to not really look out for the needs of franchise candidates but rather to serve the franchisor who pays them a commission for finding a successful candidate. Franpro is understandably uncomfortable with such attitudes.
The term "franchise" connotes franchise units. While "franchising" connotes selling / developing franchises - e.g. franchisor / broker activities.
As a broker, Franpro is indeed pro-franchising. While my interests are pro-franchise.
There are a lot of posts about how a given franchisor, an association or the industry can improve. But that is not anti-franchise nor anti-franchising. More importantly, if you are a franchise, it is hard to be against yourself - the franchise unit. "Anti-franchise" just doesn't fit.
I haven't seen any posts here that are against franchising as a concept.
To your point, it is still quite easy to be mislead if you speak to 10-15 franchise owners. By the way, that is a lot of owners to speak with.
You are definitely on the right track wanting to speak with a few ex-owners to get a rounder picture. Sometimes franchisors purposefully put bad phone numbers or phone numbers of closed down stores next to ex-owners so that you cannot contact them. So, if none of your phone calls are working, it is a worrying sign.
Your inner voice is telling you the right thing. Move on.
HOW ABOUT A FREE FRANCHISE!
Susie Q
Lowest total investment. That's hard to answer, without a market valuation, and a full understanding of how you propose to establish the business. However, it's hard to beat FREE!
You might want to take a look at www.out2.com they are actually giving franchises away, and waving training fees. You can start the business from home with no employees.
They are kinda pioneering their market, but it's a VERY INTERESTING concept that just might catch on. If you contact them, let them know that you heard about them from FranSynergy here at www.bluemaumau.
Believe & Succeed,
FranSynergy
Synergizing Franchising 1 Franchisee at a time!
www.fransynergy.com
Franchise Investment by Category
SusieQ:
You may find this list of Franchise Cost by Category helpful to you.
FranSynergy
Synergizing Franchising 1 Franchisee at a time!
www.fransynergy.com
EXEMPT?
Why are some franchisors exempt from public UFOC?Ex-franchisees speak
Disclosure of gag orders may prompt a reduction in the number of zors seeking such clauses.But my experience is that most zees never contact ex-zees in the first place, and even when they do and they go back to the zor salesperson, the zor will respond that "those are just disgruntled failures who didnt follow our advice. They were not team players and they were just lazy malcontents. But you are not one of those people, are you?"
Theoretically, you are right and the result of the changes should be more honest discussion. But in practice, this will only make a difference if prospective franchisees do their due diligence.
Hsueh & Coen posts
Mr. Coen put it well as to the substantive reply, but I do apologize for the shorthand references. Sometimes on discussion boards it is difficult to strike a balance between being too brief and too detailed. And I should distinguish between Mr. Bororian and Mr. Amos. The former by all accounts I have heard is a nice guy and his crime involved taxes and not harm to franchisees; the issue is that if a trade organization (IFA or otherwise) is to lend its imprimatur to an individual there is a matter of that status actually meaning something. As to Amos, I will see if I can get the Brice Foods info as well, but if anyone has info please post. Also, there have been some posts on http://www.franchisepundit.com/forum/viewtopic.php?id=53&p=1 As to my background, I am a former franchisee and now practice law, primarily dealing with local small businesses. Franchise law is my (admittedly dorky) hobby, and I wrote a piece on regulation of franchise relationships, the library citation is: Beguiling Heresy: Regulating the Franchise Relationship, 109 Penn State L.R. 105 (2004). This is emphatically not a solicitation for business, I only practice in my local area. On the issue of participant identity: While I agree whith Mr. Hsueh that it is preferable to know the background of someone posting, I do understand that some people have legitimate concerns about attaching their names to a post, and I think that we should be cognizant of the reasons why people may feel the need to post anonymously. --Paul Steinberg, pwsteinberg@msn.comLink to Court decision / Amos / followup to Hsueh post
It was pointed out to me that this link should work: http://www.4thcoa.courts.state.tx.us/case/opinions/0000101.htm Relevant portion: "The jury found, inter alia, that Scott, Amos, and Holt were involved in a conspiracy. Amos and Holt had settled before trial, and, after the verdict, Scott settled by way of a non-dischargeable agreed judgment in his bankruptcy case for $1,500,000."Jim Amos
Jim You have been around this industry long enough to know that not everything printed about a franchisor or the negative things said about individuals is correct. People need to let the legal process move along, let the facts come out and then make their judgements. I have known Jim Amos for close to twenty years now. I also know Janet Sparks. Jim has had a remarkable career in franchising. He is also served two tour in Vietname and is Marine and may be one of the most ethical and moral people I know. And that says a lot really. He has entered franchise systems when they were in troubled states and having worked with him know that he has done a remarkable job in difficult circumstances always putting his efforts behind the brand and his franchisees. With that track record, I think jumping to any conclusions based on a Janet Sparks article is far from fair. Jim is the past chair of the IFA and worked hard at that task and got good marks from all of us who served with him on the board. He recently chaired a major thank you gala, with a host of national dignitaries, finally welcoming home and giving honor to the VietNam Vets. He is a man of his word and has a deep and strong belief system and does not falter his friends or his religious beliefs. I have read the article by Janet but I have read many articles by Janet over the years. Rarely are they ever favorable to the IFA or to franchising in general and that is her spin. There are factual errors in the article that are known to those of us who follow this matter (I am not involved as an advisor or a consultant to Jim or Sona), it is one sided and paints a picture that likely is incomplete and also possibly incorrect in its assertions. Based upon his history in franchising, and as a man who has earned the respect of his peers, the statements in this blog are just unfair to Jim Amos. I think in time as it weaves its way through the legal process, the facts will be known and then we can all make an informed decision. That is the proper thing to do. Michael SeidCorrection
Michael H. Seid
Managing Director
Michael H. Seid & Associates (MSA)
94 Mohegan Drive
West Hartford, CT 06117
(860) 523-4257
(860) 523-4530 - facsimile
www.msaworldwide.com
Paul - MSA does not broker franchises and never has. You obviously know little about our practice. Our firm has provided litigation support against several franchisors when the facts fit. We have also provide litigation support in cases against franchisees - when the facts fit. You might want to talk to some of the members of the franchisee bar we have worked with - it would be useful. If you are going to comment on my approach to anything, it would be useful if you knew what that approach actually was.
Michael
Being compared a Carnival Barker is not so bad!
Janet Sparks in her article in the August edition of Franchise Times quotes Mike Rubin, a ex-franchisee of Sona Med Spa as saying that "“To me, Jim Amos is nothing more than a carnival barker.”
The reality is that many of pioneers of franchising had a little “carnival barker” in them and that what not necessarily a bad thing. Sales showmanship was important to recruit franchisees in the early years. Many of the early franchisors had leaders that possessed that showmanship such as Colonel Harland Sanders of Kentucky Fried Chicken, Ray Kroc of McDonalds, Tom Carvel of Carvel Ice Cream, and Dave Thomas of Wendy’s, to name a few.
More important to sounding like a “carnival barker” or exhibiting “showmanship” is acting with integrity. As with the examples listed above time usually sorts that out.
Jim Coen, Franchise Perfection, 877-469-3002, jim@franchiseperfection.com, www.franchiseperfetion.com
Semantics-Continued
Jim states that his definiton of a consultant is" A party engagaged to give professional advice or services for a fee, but not as an employee of who engages him or her"
The great thing about what I do, is that I am not an "employee" of anybody..Either the franchise companies that pay me a "finder's fee", or the local folks I work with. I own my own business, and I own what I do....
I do not know anyone in "franchising" who thinks that consultants such as myself do anything "disingenous". And if there are people out there like that, that is "their" problem, not mine.
There are several franchise companies that have used consultants/brokers to build their brands and systems. We make a large impact in the franchise world, especially those of us that work in our LOCAL markets, AND meet face to face with our clients.
Semantics aside, what this really is about is promoting franchising as a business model for the right person, and to help that person get where we want to go.
Jim, who pays you fees? And why do you feel you are helping folks?
Franpro
Why should ZEES have to work with Item 20?
The franchisors have all of the past performance history of their franchisees at hand but are not required to disclose this information under the FTC Rule or state UFOC's. It appears that the Item 20 references provide an opportunity for the franchisors to avoid their responsibility to disclose this information to new buyers of their franchise. Instead, the UFOC's indicate that this is the due diligence responsibility of new prospects ----knowing that the process is flawed and inaccurate at best. Item 20 is a weak and ineffective and inefficient substitute and artifice, a subsidy, to permit the franchisors not to disclose the ZOR-known success/failure statistics of the first generation franchisees who are no longer in the system. Suppose the current and the ex-zees gave prospective franchisees false and misleading positive information about their experience that resulted in the purchase of the franchise by the investigating prospect; would the damages the ZEE suffered in failure be proximate to the misrepresentations of the current and ex-zees the prospective Zee had consulted? The franchisor has no responsibility, of course. Again, the UFOC and Item 20 together with the signed FA provides absolute protection for the franchisor from any claims of fraudulent inducement or misrepresentation in the process of the sale of the franchise. The FTC and the IFA are in bed together and the DEAL survives as immoral regulatory policy.Exempt If There's Enough Money
What an innocent question. Is Tinker toying with us?
Money.
As a public company, financial reports must be disclosed to the SEC. I guess that higher standard exempts franchisors. In the case of Fatburger, they were exempt from disclosing the incarceration of one of the directors because the holding company transferred ample cash to their Fatburger subsidiary to meet California's Department of Corporations requirements of exemption.
See Fatburger story here
Exemption of Registration!
Tinker:
If I understand your question correctly, the Franchisor is not and can not get an exemption from preparing a UFOC or providing the Prospective Zee with a compliant UFOC.
There are however various exemptions in the registration states, which allows those franchisors who meet and/or exceed the exemption requirements to eliminate the some times tedious process of registration. It does not exempt them from otherwise being compliant to disclosure.
I hope that this answered your question.
Believe & Succeed,
Dale
FranSynergy, Inc.
Synergizing Franchising!
Invasion of Privacy in UFOC
I have always wondered why ex-Zees would agree to have their personal information printed for public consumption in UFOC's that are part of the sales process for franchisors. When, if ever, would this be in the interests of the ex-franchisees whether or not it was a matter of a failed or a successful business. It seems to me, a non-lawyer, that this is somehow a violation of the Privacy Act unless the ex-franchisee specifically agrees to the printing and distribution of his/her personal information in a UFOC. It also appears to me that this is a weak substitute for not indicating the actual percentage of failed franchise units in Item 20 of the UFOCBy 'public', I mean on the California site.
What does the financial status of a company have to do with whether their UFOC should be available on the CALESI site? It shouldn't. If anything, the larger franchisors have more financial resources to squash their unsuspecting franchisees so it would seem that public availability of the information would be even more important.
Being Anonymous Has Merits
Very well put. We allow our readers to come in under their name, under a pseudonym or anonymously as "guest". Like the rest of us, guests can post stories, make comments or participate in forums. (They cannot create user profiles or blogs.)
Our readership benefits from news scoops of those who post anonymously. If it's newsworthy, usually someone who is registered will follow up on it.
Mr. Blue MauMau
Links Do Work
Thanks for the link. I actually took the time late last night to read the whole document in the hopes it would help me fall asleep. It worked like a charm.
I don't quite know what to make of the judgement, since the judge did not make a ruling on Amos, as it was resolved out of court. Considering all the franchise endeavors the guy has been involved with through the years, I'm surprised this is as ugly as it gets and that this is all there is - a case of an out of court settlement. I should be so lucky when I'm rich and famous.
Scott is the guy with the ruling. $1.5 million worth. Ouch!
I'll have to read the document again to understand better what the actual misconduct was. I think it has to do with not being forthcoming with franchise investment information. Maybe when I get another night of insomnia.
So what was the Borodian case?
Craig
So Easy To Diss
Seid writes, "I think in time as it weaves its way through the legal process, the facts will be known and then we can all make an informed decision."
I think that is a very fair statement. I should be so lucky as to have been involved with thousands of franchise sales and have my detractors point to a single case that was settled out of court and is ongoing in regards to other parties as evidence that I'm not ethical and that my pals are bad eggs. If *I* were the head of MBE, the IFA and many other companies, I doubt if I could have such a low amount of torts against me -- no matter how nice a guy I was.
My teenager reminds me daily on how hard it is to be a good guy to everyone all the time. I can't seem to win no matter how hard I try. Now magnify that by the thousands.
Craig
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