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Franchising Needs Better Government Regulation

Discussion of legislation and political advocacy regarding franchising.

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New Business

Franchising is good for people who is uncertain to do business. This is a good start to become an entrepreneur. We should adapt this kind of concept. Thank you

Mr. Blue MauMau's picture

Government Regulation Forum Being Unfairly Targeted

Unrelated comments under news stories will be either unpublished, spammed or moved to the ranting forum (you can thank TIF for that name). I will dump unrelated comments there in order to preserve this forum and its discussions.

As the moderator, I have been moving government regulation comments that aren't related to news stories here. Although no one has called me on it, there is a problem with this strategy that I have now come to realize.

Moving comments from other threads to this forum disturbs the natural discussion and debate that should take place here. It makes this forum less desirable for discussion. So in order to preserve this forum's discussion and debates, out of place blog and news story comments will only be placed in the Rantings forum.

Mr. Blue MauMau
Moderator

Thank Mr. Blue Maumau...

The Ranting Forum was especially made for the Item 20 Ranter (sometimes called Carman). It is the only top to bottom rubber room on BMM and is a safe place fo the Item 20 Ranter to recklessly rant away without limit. 

The Truth Shall Set You Free!

TIF

Barbara Jorgensen's picture

I believe before someone

buys a franchise they really need to study the world of franchising. When someone reads a UFOC without any knowledge of franchising it is hard to understand what the UFOC is saying.

After studying here and asking many guestions I am now reading our UFOC. I can understand alot more. It is easier to read after learning what franchising is all about.

Most people believe they are buying a system in business that is proven. Over a year ago I would believe this because of misleading things I have spotted on the UFOC.

Carman I am on item 20 and it is misleading people to believe they have many stores opening. Today only less than 25 (20) I believe is opened.

The risk factor was way more than anyone of us believed. Because the disclosures do not add up. But who would ever know until a year after we signed the franchise agreement?

If the disclosures were honest I believe none of us would of signed the agreement. Because if we were told about how many stores had closed at the time of the signing we would absolutely know the risk was too high. Plus if current phone numbers were given to us it would of allowed us to get a hold of these burnt zees.

 

Granville_Bean's picture

That's what I've been telling you for years

BJ sez: "I believe before someone buys a franchise they really need to study the world of franchising. When someone reads a UFOC without any knowledge of franchising it is hard to understand what the UFOC is saying."

I've been telling you for years now that the single most important thing for a prospective Zee is to KNOW WTF THEY ARE DOING.  But for that you have accused me of shilling for Zors.  If you knew the fitness business before you signed on to own a fitness club you would have a much higher chance of success and a much lower chance of buying jumk.

Same for knowing the hamburger biz before you buy a burger restaurant, knowing the sandwich biz before you buy a sandwich shop, knowing ice cream before you, etc. etc.  A fool & their money are easily parted and so many of the Hurt Zees like BJ didn't bother doing their homework until after they had failed the course.  If people knew what they were doing before they did it, we would not have so many Hurt Zees here griping about how bad the Evil Zor was.

Knowing what you are doing before you do it helps you to not buy junk.  YOU need to know what youa re doing BEFORE you sign, and that is YOUR responsibility.  Whether it is car dealers, investment advisors, insurance salesmen, etc. (or franchisors) there are plenty of people out there who would like to take your money.  It is YOUR responsibility to look out for YOUR OWN money.

Barbara Jorgensen's picture

Sez Bean I guess

you believe it is alright for franchise salespeople to omit material facts that would of stopped zees from signing on the dotted line.

The fact that the salespeople have no responsibility to be open, honest or ethical does not cross your mind.

If that were the case all franchise salespeople should keep their damn mouths shut. 

Granville_Bean's picture

Boo hoo Barbara yet again

It would be nice if there were no contagious diseases but until we eradicate them I will still get a vaccination.

Your solution to falling for a sales pitch is to wish the nanny state would make the other side of a transaction protect you from yourself.  And until that day of puppy dogs that fart rainbows arrives, you refuse to consider vaccination.  You're someone who would complain that a 3-card monte dealer didn't tell you he was going to take your money.

Why would a commission salesperson go out of their way to point out something that would prevent the sale from taking place?  The incentives are too great in the other direction.  If you had put half as much effort into franchising before you bought one as you have put in after you failed, you would not be here honing your fine whine now.

KNOWLEDGE innoculates you against bullsh*t.  But don't expect the OTHER guy to spoon feed you YOUR knowledge.

Barbara Jorgensen's picture

I have to question if you have any knowledge

of ethics.  If what you say is true, I would not encourage anyone to buy a franchise.  You are telling the world it is okay for salesmen to lie and steal.  Misrepresentation means nothing to you.  If a salesperson uses a factor that is misleading, YOU believe it is their right to lie to their client.  I believe it is not right.    

Franchising IS an Entitlement Program for Franchisors

The FTC Rule and the State UFOC's (FDD's) are a subsidy for franchisors and an ENTITLEMENT program. Apparently, territory protection for franchisees are a thing of the past and encroachment by franchisors on their franchisees is legal and rising within the industry. Don't know how McDonald's handles this in the saturated QSF sector but all new franchisees are in great danger from encroachment from their own franchisor and HIS competetors. Franchisors want to get "FAT" while making Americans fat. The quick food service market is saturated at the expense of franchisees who are the filling in the sandwich.

I'm not surprised that McDonalds owns most of the buildings and real estate that McDonalds franchisees lease from them because it makes the co-terminus default provisions of the franchise contracts l00% effective and they earn even more profits for their stockholders with their commercial real estate investments. As long as their franchisees have collateral, there is no way that McDonald's is going to lose, ever. At least, McDonald's, through this policy, ensures that their franchisees are in good locations. Quiznos appears to make money in the "location" business and this is another source of income for them.

I'm not angry at McDonald's. Up until a few years ago, I really didn't understand that McDonald's was owned by individual little franchisees and franchisee chains within the big golden arch. Like so many Americans and the Congress, apparently, I was taken in by the advertising and the hype and didn't really understand the exploitive business model and the franchisee-franchisor relationship that is intentionally blurred when advertising to the public. I assume McDonald's doesn't have to churn and turn to survive and that their first owners actually do survive with profits.

I think franchising needs to be exposed for what it is and that the government economists need to look at what franchising is doing to the economy in the long term.

Barbara Jorgensen's picture

Even if you and your

spouse dies within the 10year agreement you are still responsible. It amazes me that death does not void the contract. Does your children have to be responsible? And does that mean out of your estate the zor gets paid. Another reason not to sign a franchise agreement. Is that true in most franchise agreements? I wonder if McDonald's have that on their franchise agreement. Who would want to leave that responsibility to your children?

Granville_Bean's picture

well duh

BJ expresses amazement that: "Even if you and your spouse dies within the 10year agreement you are still responsible. It amazes me that death does not void the contract."

Well duh.  If YOU have a contract that SOMEONE ELSE is obligated to pay YOU, and you die, then the other party pays your estate.  The obligation in your favor is an asset of your estate.  The other guy doesn't get out of his debt to you because, "Phew, BJ died, now I don't have to pay".

And if YOU have a contract to pay SOMEONE ELSE, then no, your obligation isn't erased upon your death.  It is a liability of your estate.  Your estate pays off the debts your left.  The other guy doesn't have to say "darn, now I can't collect".  You think if you die your mortgage is forgiven and the bank doesn't get paid for your house, you can just leave it to your heirs and the mortgage evaporates?

Now, if you have negative net worth, then the other guy may not be able to find a way to collect.  But it is not your "children" who pay, it is your estate.  Though (again) if you have negatvie net worth there will be nothing to leave to the chidren.  But that is hardly unique to franchising.

BJ continues to amaze with how naive she really is.  It must be true because you can't make this stuff up, nobody would believe it! 

Barbara Jorgensen's picture

Then people need to buy insurance

to cover the cost of the business. 

There can be an addendum added that the zee and spouse is freed from the contract if one of them dies.  If the zor doesn't go for it just run.  Addendums are legal!!!!

Granville_Bean's picture

half full or half empty

BJ goes deeper: "There can be an addendum added that the zee and spouse is freed from the contract if one of them dies.  If the zor doesn't go for it just run.  Addendums are legal!!!!"

However, no Zor (or anyone) is obligated to agree to an addendum.  And no McDonald's Zee would WANT such an addendum, because the value of their franchised business would be the largest part of a McD Zee's estate.  If the Franchise Agreement was voided by their death then there would be nothing to leave to their heirs.  Indeed, I know a McD heir who had to fight hard to KEEP RUNNING the franchises when it was the Zor who wanted to terminate his father's franchises and take back the stores.

But again, BJ is in "failure is assumed" mode and presumes that the FA is a detriment rather than a valuable asset.  This is my gripe with BJ: she does nothing to help anyone achieve success, she only wants to have them fail less.  And that is NOT the same thing.

Barbara Jorgensen's picture

People need to do whatever it takes

to protect themselves. 

Now the word is out that zor's blame you if you believe them.  What does that tell you.  Don't believe zors and their reps.  If you do they'll say it is your fault for believing them.  Isn't that a red flag?  The truth is when the shills come back with this, they are shooting themselves in the foot.

Franchisees can't DIE or GET SICKI

It is really a serious problem for franchisees. You are right, Due Diligence. There are EXPERTS in estate planing that deal with this problem in franchising and who have advertised on Blue Mau Mau.

Thanks for bringing this up. You have to be very healthy to be a franchisee. If you get sick and have to close up for more than 3 days (the term differs), your franchisor considers that you are in default. If you get sick and go home and close your doors because you are the only employee of the business, you have to get well within the time allowed in the contract, or you are in default and can be terminated. If you get called to serve your country, you are really in danger as demonstrated by the article in Franchise Times April edition.

How dare franchisees get sick and what kind of excuse is that to not deliver those gross sales for the franchisor. You own a businees of your own? that you owe on and your franchisor owns you and your gross sales under contract, Never forget that!

Barbara Jorgensen's picture

I didn't read that

we can't get sick. When you read the UFOC you can't believe how unrealistic it is. If only I studied here on BMM. By the way Rick Schaden is not mention in our UFOC. Most people that is listed are no longer with the company. Interesting.

Carman's Psychosis

Psychosis is a generic psychiatric term for a mental state often described as involving a "loss of contact with reality." People suffering from it are said to be psychotic.

People experiencing psychosis may report hallucinations or delusional beliefs, and may exhibit personality changes and disorganized thinking. This may be accompanied by unusual or bizarre behaviour, as well as difficulty with social interaction and impairment in carrying out the activities of daily living.

A wide variety of nervous system stressors, both organic and functional, can cause a psychotic reaction. This has led to the belief that psychosis is the 'fever' of mental illness—a serious but nonspecific indicator.[1][2]

The psychosis of franchising must be catching

The psychotic individual who wrote the above Post must really be worried. I must be getting to him with my "insanity" and he would like to silence me. Instead of refuting my truth with his greater truth, he attacks me.

I'm happy that Mr. Blue Mau Mau will not give out my private information to angry people like this Poster who are really the dangerous in our society who hide behind their superior positions in the status quo and the law.

Carman you flatter yourself...

Truth! What truth? Your so-called "truth" has been denounced by the best posters on BMM.

Barbara Jorgensen's picture

Do you consider yourself

one of the best posters on BMM. Then resgister so we can give you a name. For all we know you might be a Q corporate guy or a Cuppys corporate man. Or you just get paid well to get rid of us. Don't give it much thought because I know i won't be posting much in the future. I have to get back to working after of years of working when I want to. Franchising was the biggest mistake I have ever made. But if I had a good zor it might of turned out well.

Can't we just get along and you write what you want and we write what we want. That way BMM will be well balanced. Not one sided like the FDD/ UFOC.

I am but a Humble Guest Poster...

No Carman, you (Do) and I can't get along since we will never agree that franchising is a force of good in the world and it greatly benefits franchisees, employees, consumers and franchisors.

Franchising

I really want to learn all that I can about franchising. My husband just retired from the military and wants his own business. He isn't sure if he wants a franchise or not but I am on here trying to learn all I can and do not have a clue. Where do I start?

Franchising ----Tilden ----- LET THE BUYER BEWARE

Your husband will be a target of franchisors who know that he will be eligible for a guaranteed loan under the SBA Pilot Express Loan initiative that was introduced in mid 2007. Your husband will also be eligible for a "military discount" on the franchise fee but don't let all of this fool you. Franchising could be the worst "tour of duty" your husband has ever experienced. Instead of buying an American Dream, you could be buhing the American Nightmare. The collateral you pledge for the loan, your house or savings, will be taken by the bank or the SBA if you fail.

Franchisors target retired military because they know they can work a long time, and maybe forever, for no pay or salary in a startup because of their retirement pay. Franchisors, of course, take their royalties on the gross sales of the business whether or not the business is operating at a loss, breakeven, or a profit. Franchisors hype the success of their so called "proven" plan and show you how their network has expanded but they don't talk about either success or failure of first-generation franchisees either in the UFOC (FDD) or the actual contract, in which, with your signature, you acknowledge that you are investing at 100% risk of failure. This state of affairs allows franchisors to sell franchises with very high failure rates of first-owners of the franchise out the front door as long as they can abet the fire sale of failed units out of the back door.

When their first-owner franchisees fail, most often this is not a failure for the franchisor because, in failure, because of the personal guarantees you will have signed to get the loans, and because of your personal guarantee on a lease, you will have to give your business away to a second-generation franchisee to get out from under the personal guarantees and save yourself from bankruptcy. If your debt is so large and this won't save you, you will then have to declare bankruptcy. If giving your business away to get out from under the lease does save you from bankruptcy, you will be servicing your debt and standing up the second-generation franchisee for many years to come. The second generation franchisee perhaps has a chance of bringing the unit to breakeven because he has greatly reduced risk and no or little debt to service, and generally reduced overhead (lower rent payments) and more time in which to increase the sales of the unit.

Franchisors are not required under law to disclose the actual performance statistics on a unit basis. Item 19 and Item 20 of the UFOC (FDD) are a government subsidy of franchising that permits franchisors to obscure and hide the rate of success and/or failure of the first owners of their franchises from new buyers and from the regulators, and from stockholders, as well. The government UFOC(FDD) is really just a license to sell franchises at any degree of risk under the law and accompanies a boilerplate adhesory contract wherein you will have to acknowledge that the franchisor didn't promise you success or profits and that you haven't relied on anything that isn't stated within the four corners of the contract. Franchisors can encroach, legally, upon their own franchisees unless the territorial rights are spelled out in the franchise agreement.

A franchise is NOT a business of your own. It is a contract to lease a brand name with finite terms in which the franchisee surrenders control of his assets and his business to the brand franchisor who CAN grow and remain viable even as substantial numbers of first-owner franchisees fail out of business. The franchisor has no investment in your business but he owns you and your gross sales under contract for ten years or more, depending on the contract, and this is "paper" that is bought and sold in the financial markets. Churning and turning of first owners of franchises is legal under current regulatory policy and the courts uphold the contract terms to which you will have agreed.

Many franchisees never earn any actual profits because of the thin profit margins in the sector they are interested in and the saturation of the market, and the fact that they have to pay a percentage of their gross sales in royalties and advertising fees, etc..to the franchisor for the entire term of the contract, and even in failure of the business. Any professional, a CPA, or an experienced franchise attorney, like Richard Solomon, of Franchise Remedies, or the resident business man and expert, FuwaFuwaFuwagi, of Blue Mau Mau, will tell you that rarely do the possible rewards of an "investment?" in a franchise justify the risk of the investment.

I speak from experience. Please be very careful with you future and don't let your NEED and your desire for income overcome your common sense. There is no government oversight of franchising ----just an appearance of government oversight. As a franchisee, you are merely a cheap source of labor and venture capital on which your franchisor can grow his system and his gross sales. The very nature of franchising enables abuse and exploitation. Don't let your franchisor trick you into believing that he can't make money unless you make money. Your franchisor is making money all of the time you are attempting to bring your business to breakeven, whether for a year or two, or even longer, depending upon how long you are willing to provide the capital to keep trying.

If this advice discourages you! Good! This is my intention and please warn other military personnel who will be the targets of franchisors because of the SBA Patriot Express Loan Initiative.

Definite exploitation

Couldn't agree more. You will work like a dog and you will produce blood, sweat and tears just like an independent entrepreneur but you really don't own your own business. The Franchisor controls EVERYTHING and during your term they can change the requirements of someone buying the franchise to where NO ONE WILL WANT TO BUY your business years later. That is what's happened to me. New person bought the whole franchise system and then with the help of her "guru" consultants they have changed everything and jacked up fees and requirements so much that no one wants to buy a new franchise or a resale. So my contract is ending in about a year and the past 7 years will be for practically nothing because I can't resale my franchise business and I refuse to re-sign the new 10 year deal that is LOADED with one-sided mandates. My business professors were wrong--franchises are not a higher guarantee of success. Probably the reason their statistics show being in business longer than an independent business is because the franchisee is an indentured servant/serf who is under contract and paying royalties. You stay open longer because you are under contract! Not necessarily because you are more successful

Granville_Bean's picture

To Guest Advising Tilden:

Paragraph breaks.

Learn them.

Use them.

RichardSolomon's picture

Go to my website and

read all the franchisee tutorials - including the franchise fraud symposium articles.

That's your best starting point.--

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

Thank you

Mr. Solomon. I will go to your website.

Barbara Jorgensen's picture

Give us the meaning

of humble. I am sure it does not describe you!

Are you saying when ever you and your wife disagree it is impossible for you to get along. If that is so you might as well get those divorce papers started. And when your children grow up you might as well forget having a relationship with them because reality is you will never agree with anyone 100% of the time.

Paul Steinberg's picture

Tilden & DoDil

I'm not the smartest person, so perhaps the 2 of you could explain why you are having this discussion on the McDonald's / EEOC settlement thread instead of elsewhere on BMM.

Am I missing something, or are you simply so narcissistic that you must inject your views into every thread and since you have nothing on-topic to contribute here, you just want to make sure that we indulge your "ME ME ME" rudeness? 

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

Rudeness

I do apologize if you thought that I was being rude. I am new to this website and only looking for some information on franchising. I am truly sorry

Barbara Jorgensen's picture

I swear you

just described you. Oh my God you just diagnosed your own illness

Evidence: Did you not ask me to crochet a chicken, car and bicycle? .

No I just caught a mild case of the Heebie Jeebies from Carman!

Heebie jeebies is also a term used to describe depression or anxiety. This can be as an after-effect of excessive alcohol intake (see Delirium tremens) or to describe a particular type of anxiety usually related to a particular person or place. For example 'He gives me the heebie jeebies' meaning 'He makes me uncomfortably nervous'.

FuwaFuwaUsagi's picture

Arrrgghhhh...gender?

Okay, is Carman a male or a female?

FuwaFuwaUsagi

 

Barbara Jorgensen's picture

If you strongly believe

franchising is the best way to go. Then you shouldn't have to get the heebie jeebies or care what we post. It is our reality and not yours. If you are successful - good for you. But respect us for our opinions because it may save someone from experiencing what we have. There are plenty of zors on here that don't constantly follow us around and try and make us look bad.

Believe me if my experience was wonderful I would be writing everyone should get into franchising. But the truth is the opposite. Why would anyone want to ruin someone financially after they have worked a life time to prepare themselves for retirement? Except out of pure greed and no concept of what is right and wrong.

I don't know you except you don't like what Carman and I write. That's okay. You are entitled to your opinion and vice versa.

Carman and Do...The Truth

Carman's mission is to spread a anti-franchising message based on misinformation and ridiculous opinions.

Do is simply a lost and misguided failed franchisee looking to assuage her guilt from here business failure who has become a disciple of Carman sort of like a pet monkey.

Barbara Jorgensen's picture

There are no failures

just learning lessons. One is to stay away from franchising unless you know 110% the zor really wants you to succeed. In ours everything points to they never wanted us to succeed.

FuwaFuwaUsagi's picture

  Dearest Do: Submitted for

 

Dearest Do:

Submitted for your consideration: 

You wrote:

One is to stay away from franchising unless you know 110% the zor really wants you to succeed.

My reply:

I strongly suggest you do not make this your criteria.  It is not a consideration I would make.    Here is why.   You have no assurance your current zor will be your future zor.  The business could be sold, it could be bought out, the owner could die.  What you should do is review every clause and think what is the worse thing that an unethical zor could do with this?   Once you have your worse case scenarios you need to determine if you are willing to assume that risk.  If not either walk away or get a lawyer to negotiate the terms of the contract.   

In summary, I suggest you let go of all this touchy-feely do the care about me stuff.   It is irrelevant.  What is relevant is what legal restrictions the FA imposes on you and on the zor. 

FuwaFuwaUsagi

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

Barbara Jorgensen's picture

Go!

Have a nice evening.

Do Diligence can you crochet me a chicken?

My family is hungry and a dingo ate my baby!

Barbara Jorgensen's picture

Darn

Dingo didn't eat you. Then we wouldn't have to put up with you kiddy comments.

Carman can build me a full size Michael Moore model...

I'll provide all the clay or lard!

Coterminus Franchise Agreements and Leases...

Carman, if you don't like coterminus franchise agreements and leases as a franchisee which one do you prefer to be longer the term of franchise or the term of lease?

Would you sign a 15 year franchise with 5 year lease or a 15 year franchise agreement with a 5 year lease?

Correction Carman - Coterminus Franchise Agreements and Leases

Carman, if you don't like coterminus franchise agreements and leases as a franchisee which one do you prefer to be longer the term of franchise or the term of lease?

Would you sign a 15 year franchise with 5 year lease or a 5 year franchise agreement with a 15 year lease?

Sorry Carman didn't want to confuse you.

Either way ---the trap is set for the franchisee! Co-Terminus

Solomon says that the most successful franchisors only want the shorter term franchise agreements because if their franchisees are successful, they can change the terms at five years to favor the franchisor even more with no opposition from the franchisees.

The lease, of course, triggers the trap and since leases have been securitized, it appears that there is no way for franchisees to avoid the bad consequences of buying a franchise that has a high failure rate of first owners.

Franchisors suggest the longer lease terms, of course, because they wouldn't want to be in the position, when they are SELLING, of indicating that the business, the franchise, won't last as long as the lease.

Re: Coterminus franchises and leases...the answer

The primary term of the lease should be equal to the initial term of the franchise agreement. Only an idiot would risk having either longer than the other.

FuwaFuwaUsagi's picture

actually you are just a form of pestilence

It was written:

I like to think that I am neither a liberal or a conservative and just a concerned citizen, a middle-class American, who thinks my country is in trouble and has great problems.

My reply:

Actually allow me to help you.  What you are is a resident of the United States who has totally failed in their citizenship duties.  It is more than obvious that you have no knowledge of the Constitution, you do not understand the fundamental concept of liberty, you do not understand the basic tenets of law, and your ignorance is undermining the very Rosetta Stone of liberty,   Your are a disgrace to every patriot who ever spilled their blood  to preserve liberty.  You would wrest freedom from those who exercise it, and subjugate their life's work to the tyrannical rule of Democracy.  It is not enough that we tolerate your existence in society, but to have you actually participate in self rule, you who are unable to comprehend the blessing of the self, is unfathomable.  

If there exists a great problem in this country it is your ilk.  You are but a pestilence of ignorance sweeping the land, destroying all you touch.  I thank you to consider your innate value to society; you will find none. 

FuwaFuwaUsagi

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

The Judge and the Contract ---MBE-UPS

In support of regulatory policy, the judges will always look for those terms that will permit the judge to honor the contract and dismiss the case out of court.

The franchisor has only a paper network ---a virtual business entity -- that is composed of binding contracts. It is the contracts that are sold to private investors or that become public companies that earn profits for franchisor and investors, The franchisors have no ownership of the intangible assets of the networks that wear the brand names. They only own the contracts that enable them to own the franchisees and their assets in success and failure.

If franchise contracts are not routinely held up and protected ty the courts, the paper empires of franchisors are put at great risk.

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