Item 20

The current status of Item 20 that hides the failure rate of the franchised business plans in the transfer columns, together with the new Patriot Express Pilot Loan program, will be a disservice to veterans who will not know the true and actual risk of the investment in the frnchises on the SBA Registry.

Please go to Political Activism under Blue Mau Mau to read more about Item 20 and the coverup of the franchise failure rate of franchises.

The Zors who conduct training in some of their units always pick the profitable units to train the Zees and they can continue to hide the failure rate of the franchised business plan in Item 20 transfer columns.

Just think, some one could decide to actually work in a profitable unit and then buy into a network with a high failure rate ---and wonder what happened when they couldn't make it after two or three years and their working capital was running out.

It is all very unfair not to be disclosing the true and accurate failure rate of first-generation franchisees in the UFOC's and to obscure the actual failure rate through busy and imprecise charts that were designed to conceal the true rate of failure of the franchised business plan. Who said government attorneys, when working together with franchisor attorneys, aren't smart. If the government doesn't have to know the failure or the success rate of the franchised plans they are regulating, they can ignore churning and pumping and dumping!

The proof of the pudding and the proof of the viability of the franchise that is being sold is in the success of first-generation franchisees who build and finance the physical units that bear the brand name. This is an essential and material fact that should be disclosed under law.

If you truly want to perform effective due diligence you can utilize the UFOC as good starting point. Don't be mislead by Z-Rube's rants and stay focused on what is important!

It is just a coincidence that Item 20 of the UFOC, that has been described by attorneys and other IFA members as confusing and not terribly important or terribly important but confusing obscures the actual failure rate of franchised business plans from new prospects.
It is just coincidence that Item 20 allows networks to disguise first-generation failures in which the franchisees loses the entire investment in the Item 20 transfer columns of the UFOC's.
It is just coincidence that the only kind of "churning" that is recognized by government is when the ZOR reacquires the store and resells it.

It is just coincidence that the government is unaware of ZOR abetted third-party chuning and takeover practices and doesn't have to do anything about the selling of unviable franchises to the public.

When you, TIF, stop defending the status quo wherein big networks can sell unviable franchise products to the public, and start telling more truth yourself, I'm sure you won't find my comments bitter.

I always separate the predator franchisors from the ordinary franchisors but the fact remains that the FA's together with the UFOC's permit predators to sell unviable products and grow their networks on the flesh of innocent franchisees who are just a cheap source of capital and labor for the predator.

Just look at the Coffee Beanery Mess and you see the federal policy. The IFA and the FTC are in bed together and the Arbitration Industry joins them in a "French Connection" and the franchisees are toast.

If you don't like my truth. put your own truth out here to refute my truth instead of always attacking me.

If Franchising can stand on its own merrits and the true risk of the investment is disclosed in statistical terms to new investors, I am not against franchising.

When the true risk is disclosed and the buyer signs the contract, this is informed consent. You and others in franchising are "enablers" of this ugly status quo and this is why we have the mess of Quiznos, The UPS Store, CSC, The Coffee Beanery and who knows how many others who are eligible for "quickie loans" on the SBA Franchise Registry.

Clean up the act TIF and get off my back.

One can always count on Richard Solomon to tell the truth and the truth is not pretty. One of the things that I admire about Richard Solomon is that he doesn't try to present the truth in terms that make the franchisors look good.

When you understand the malice of franchisors who sell TEN YEAR binding and indenturing contracts to novice franchisees when they know they are going down the hill, you understand that you need killer due diligence to find a franchise that is worth the inestment when compared to the risk. Novice investors do not have the experience and the knowledge of sectors and indicators and are impressed with the visibility of the franchise that translates to viability and profitability of the investment.

In my opinion, this is why the UFOC's together with the killer franchise agreements are just an ugly trap set for the novice investors who provide cheap venture capital and cheap labor for those who are smarter. It is so obvious that the FTC is in bed with the IFA and that this public policy and status quo is considered essential to feed the fires of development in the economy.

If you don't want your life to be a LOG thrown on the fires of development in the economy, you cannot afford to NOT do your due diligence with attorneys like Richard Solomon, Michael Webster, and Paul Steinberg who kmow the industry inside and out and who will tell you the truth. Richard Solomon's offer of a $1,000 Negative Due Diligence Consult is the best offer in franchise due diligence today. This offer could save thousands of novice investors from a hell that is behond description, as would be witnessed to if former franchisees didn't end up silent and destroyed financially and emotionally in the franchise graveyard of debt or bankruptcy.

This article points out again that it is the franchisee who bears the 100% risk and who fails 100% personally when the franchised business fails. The personal guarantees that are requisite to negotiating a lease to house the franchise and often, a personal guarantee on the franchise itself, so often destroys the failed franchisee when they cas no longer service their debt.

When there are only little increases in their overhead, this can topple them. We can see that rising interest rates on adjustable mortgages that were borrowed against by franchisees could be the final blow if the payments can't be made. We can see where this may be an ongoing problem for the banks who have loans out on home equities that are invested in franchisors whose franchisees are distressed and struggling to stay afloat.

This situation, however, will make the banks more cautious about loaning money on the home equity for business investment and it will behoove the banks to know the actual rate of failure of the franchise that can now be obscured in the Item 20 coiumns of the UFOC's. The SBA and Fran Data may also have to take a look at the transfer columns and do a little due diligence as well to protect themselves and reduce their risk.

Maybe the banks themselves will have to become more involved and more proactive to protect their stockholders and they will perform due diligence that will help the borrowers and protect them from unrevealed high risk investments.

The "writer's note" points out that the franchisor limits liability through the corporate form and doesn't have personal assets, like the home, at risk. The franchisor is in a better position to ride out the storm and to save himself.

Because the actual and real risk of the investment is obscured through the sale process and the UFOC that in reality legally protects the franchisor and permits the franchisors to sell their franchises at any high rate of failure, many franchisees really have no idea of the great risk they are taking and the "noose" that is now around their neck when they can't service their debt.

It is one thing to warn that there is risk and no guarantee of success in a binding unnegotiable contract and a UFOC and quite another to throw the red herring of the voluminous UFOC out there to avoid revealing past performance statistics that would reveal a material risk factor that should be disclosed by franchisors under the law in the UFOC's.

Maybe! when push comes to shove, this immoral and unethical status quo that has been with us so long will be uncovered and the churning and sacrifice of first-generation franchisees as a managment tool for predator franchisors will be revealed and prevented.

There are simply no facts or basis for anyone to conclude that there was or is any collusion between the IFA and FTC on Item 20.

I understand, Michael. the AAFD is in the "Truman Mode" -- when you can't beat them, you have to join them in order to work for change and the public good.

Harry Truman and Pendergast(sp) were great friends and Harry Truman inherited the common sense of the farmer --if not the business sense and instincts of the successful grafter.

Again, I ask. What is the good of fair standards and a fairer contract if the contract is to buy a franchise that has a high failure, or low success rate, that can be obscured under disclosure laws from those who purchase franchises? The AAFD like the SBA will bestow their seal on any ZOR who meets the guidelines but will discliam that this is any recommendation of the franchisor, or any assessment of the risk of success or failure of the franchise.

Those franchisors who have high failure rates and high visibility may not seek AAFD approval of their contracts if you will expose their high failure rates in your AAFD due diligence package that is offered to the public.

Always! There are conflicts of interests that will be settled in the interests of the franchisors and not in the interests of the franchisees. The status quo will be protected.

The dirty secrets of franchising will continue to be hidden and there will be business as usual. I understand!

If the Item 20 columns clarified the transfers through the disclosure of the purchase price and the sale price of the transfers, this would provide a complete picture of the risk of success or failure as well as an idea of the ROI on the investment for the NEW potential franchisee who would be building a new unit for the franchisor based on the franchisor's estimate of costs for startup to breakeven. (In the original rule in the 70's, the FTC indicated that the reasons for "terminations" were to be given. This was abandoned later in the State UFOC's because if the reasons for "terminations" had to be given, and if transfers were "terminations for the franchisee" that were obscured in the transfer columns, wouldn't this mean that there would have to be reasons given for the transfers?)

It was obviously a DEAL that permitted the government to have deniability because unless they investigate, they do not know what the transfer columns are indicating in terms of success or failure. This is why franchises with very high failure rates of first generation franchisees can continue to be sold to the public and this is why the SBA will guarantee loans for franchisees with very high failure rares.

The franchisors know the purchase price and the sale prices of the units in their network and access this when they compile the information for Item 20 of the UFOC's. It would not be a financial burden for them to disclose this information based on the unit ID and location.

The Item 20 references, of course, do not provide an effective means for franchisees to perform due diligence on the risk of the investment and this is obviously the Intent of Item 20.

The red herring of hundreds of pages of "complicated" disclosure in UFOC's about the franchisor and the terms of the killer contract that doesn't touch on the viability of the product the franchisor is selling to the public together with the ineffective Item 20 references are a disservice to the public. The FTC has not met the Purpose of the Rule as defined under the law.

If franchising were truly a free market activity, the statistical risk of success or failure of the franchise would be disclosed to the public. Those franchises with low failure rates of first generation franchisees would find a market, and those franchises with high failure rates would lose their market.

Nice to have you back, Jim B! Where have you been?

Obviously, Item 20 is a deal between the FTC and the IFA that was agreed to when first the FTC Rule was promulgated in the late 70's. The FTC lied about the purpose of the Rule and Item 20, the ineffective and inefficient overview and snapshot of the network and the references, is an effort to meet a very low threshhold of truth.

It is a longstanding ugly and immoral status quo that presents a legal trap for unwary franchisees who don't do their due diligence with killer due diligence attorneys. While it took me months of listening on Blue Mau Mau and researching to fully understand that the UFOC and Item 20 is provided to PROTECT the FRANCHISOR and not the franchisee, I was happy to be vindicated by the quote from Assistant Professor of Law, Elizabeth C. Spencer, as appears
in posts, below.

LET THE BUYER BEWARE OF ITEM 20 ---of PREDATOR FRANCHISORS WITH VERY HIGH FAILURE RATES OF FIRST GENERATION FRNCHISEES THAT CAN BE OBSCURRED IN THE Item 20 TRANSFER COLUMNS -AND OF GOVERNMENT REGULATORS who licence predator franchisors to steal under the auspices of the UFOC's and the SBA Franchise Registry.

It is because the FTC has not required the franchisors to disclose past or present performance statistics concerning the franchises they are selling to the public that the franchisors have been able to sell unviable and flawed products with immunity and impunity under the law to American Consumers of franchises!

Shame on the FTC!

I failed as a UPS Store franchisee and I despise all of franchising. Franchising promised me success and I ended in failure. There are no good franchises and all franchisors hide their failures in Item 20 and churn their first generation franchisees. Franchisors have a deal with the SBA and landlords to cheat franchisees out of their businesses to build their networks.

Arbitrators have absolute power under FAA Rules to promote federal regulatory policy and you were robbed! Absolute power always corrupts but it is good for business. The people in here just want to have academic discussions and sell whatever it is they sell to the public. The editor wants to grow his readership and help sell franchises and needs advertising to keep this site alive. I think my days are numbered.

They want no justice and they don't care that you were robbed and destroyed.

You would think that they would just read our comments and ignore them but they are afraid that someone else might come in here and read them and now they want to vote to bar my comments. You see that they move my comments to Political Activism or Item 20 or wherever but the editor doesn't remove the comments about my comments. What does that tell you?

Good luck to you, D&R. You have done the right thing for the right reasons

Should it be taken under advisement that the ranter's constant insane ranting on every issue is a real turn off that may itself reduce traffic coming to this site? You have been tolerant under the principle that even repetitious pain and agony do serve some purpose - BUT ENOUGH IS BLOODY ENOUGH!--

Directing his crap to another area of the site just aint cuttin it. The only reason I'm saying this publicly is to find out what everyone else thinks about this absurdity.

Richard Solomon, www.FranchiseRemedies.com,  has 44 years experience with franchise litigation and crisis management.  Trouble is his speciality. He is a graduate of The Citadel (A.B. Modern Languages) and the University of Michigan Law School

It appears that the AAFD is in the position of of awarding their Seal to Franchisees with high failure rates of first-generation franchisees.

Can this be justified? What good is a seal of approval on a franchise where the first-generation franchisees have a high risk of failure? Isn't this a disservice to the franchisee who is unaware of the high failure rate of first owners, first-generation franchisees, who may believe that the AAFD wouldn't award a Seal of Approval to those franchisees with high risk of first-generation failures?

How does the AAFD intend to overcome this situation? Obviously, the fair contract can't compensate for an unviable or flawed franchise that has a 30%, 40% 50% or 70% failure rate of first-generation franchisees who don't complete the long-term contracts?

The snap shot reports on franchises that can be purchased from FranData confirm in my mind that the DEAL negotiated between the FTC and the IFA, that enables franchisors to obscure/hide the failure/success rate of THE INDIVIDUAL first generation franchisees, is protected and perpetuated by FranData and our government.

FranData decided that the word description "cancellations" was better language than "terminations" and obscures the failure rate of fire-sale transfers (where first-generation franchisees have lost their entire investments or lose on their investments) in the total units standing columns.

The FranData Snapshots imply that SBA Registry presence is material information but the SBA guarantees loans on franchises with very high failure rates of first-generation franchisees that are obscured in the Item 20 columns of the UFOC's. Quiznos, The UPS Store, Cold Stone Creamery, SonaMedSpa, The Coffee Beanery are good examples.

FranData uses the overview, just like Item 20 of the UFOC --the pretty picture ---of the total network units to misrepresent the viability of the franchise investment to prospective first-generation franchisees who will provide the labor and capital to build new units for the franchisor. Franchisors can then perpetuate the visibility of the network that implies viability to new first-generation prospective franchisees without disclosing either the success or failure rate of the investment to new first-generation investors.

This continuing cooperation of the FTC/SBA with the IFA that aborts the purpose of the federal Rule as stated by the fTC should be investigated by the Congress of the United States.

In the interests of protecting the integrity of our government, franchising needs to be regulated at least as well as securities are regulated and the past performance statistics concerning first-generation franchisees should be disclosed under law or made available under law to new investors.

Optional Item 19 and Item 20 are examples of regulatory deceit that is justified as serving the greater good by those who profit greatly from the justification.

I think the Item 20 Ranter would agree that if we went to a "Loser Pays" system like Great Britain we could clear the Nation's court docketts and provide quick justice for franchisees and franchisors.

It would dispense with all the frivolous case that stand in the away.

The Truth Shall Set You Free!

TIF

About franchisee contracts that require arbitration to settle disputes with their customers? 

The Truth Shall Set You Free!

TIF

1. What was the purpose of the FAA? Was the only purpose to clear the courts of cases? Would Solomon and Steinberg and Webster and JD go on record that this was the only purpose of the FAA?

2. Has franchising increased in the economy since the 1970's? Who are the targets of franchising today?

3. Do the Rules of the FAA ensure that arbitration awards will not be vacated except for reasons that are almost impossible to prove? And, doesn't the lack of vacation of awards prove this premise?

4. Do judges who do not support Federal Regulatory Policy in support of the economy ever get to the Federal Bench or to the Supreme Court. Any examples?

5. Robert Purvin of the AAFD and the former head of the ABA Forum on franchising both critizise the UFOC that mandates 23 Items of information, only a few of which pertain to the actual risk/performance of the investment product being sold under the
auspices of the UFOC, one of which is optional and one of which is imprecise and misleading. Paul Steinberg and Michael Webster have criticized the UFOC's. Robert Purvin in his letters to the FTC indicates to the FTC that the purpose of the Rule is to protect the franchisors from charges of disclosure fraud.

6. Does the UFOC disclose performance information upon which franchisees can do effective and efficient due diligence to assess the risk and compare the investment with other investments?

7. Why is the State Disclosure process named a Uniform Franchise Offering Circular? Isn't this misleading to the naive and inexperienced?

8. Is FranData who operates the SBA Franchise Registry misleading the public with their franchise snapshots?

9. Does the SBA guarantee loans on franchises with very high failure rates because the failure rate can be obscured in the imprecise columns of Item 20 of the UFOC.

10. Where is Frankman with his five good franchises that produce profits and a living wage for the owners of the franchise through the whole term of the contract or until the franchise can be sold at a profit?

11. Forbes indicated 10 good reasons NOT to buy a franchise. Can any of you indicate five good reasons why to buy a franchise and then recommend five good retail franchises to the readers of Blue Mau Mau.

12. Is Richard Solomon out here taking a shot at me because he thinks I criticized his friend, the Judge?

13. Is the Rule of Law protected from invasion of special interests if there is never any criticism of the law?

ENOUGH IS BLOODY ENOUGH ---and I know that I have the truth on my side and I have great faith that the truth takes on a life of its own if one just keep pounding away.

See you tomorrow. Mr. Blue Mau Mau has promised never to censor me and he can only banish my comments to the Political Activisim Section of Blue Mau Mau.

As demonstrated by the Coffee Beanery Case, the policy of the FTC, which is to stand up franchisors in the economy and to deny a private right of action to private citizens for violations of the Rule and the UFOC's, continues to be effective regulatory policy.

If the real purpose of the Rule in the late 70's was to protect the franchisors and give them immunity against claims of fraudulent misrepresentation and inducement, the Rule and the UFOC's have accomplished the real and unstated purpose of the Federal Rule. The purpose of the Rule, as stated to the public by the FTC, has not been accomplished and has been lost in a river of deceit and law that protects the Rule and protects the franchisors at the expense of prospective franchisees who are calculated sacrifices to the economy.

Franchising has grown in our economy at a great pace since the Rule and the UFOC's were introduced in the late 70's. The premise was that the Rule would reduce fraud but we can see that the Rule has enabled constructive fraud while growing the Industry of Franchising significantly. The Rule, the UFOC's and the Unilateral Franchise Agreements could hang their hats on the FAA and guarantee the real purpose of the Rule. The legal trap is perfect in execution.

If we can accept that the Federal Arbitration Act became law to prevent disruption of the economy because of disputes between management and labor and to remove the burden of litigation from the courts, we can understand that the main thrust of the FAA was to provide protection of the economy from crippling strikes and litigation through binding arbitration that would not be reviewed and reversed by the courts and that would keep the economy running smoothly.

The Rules, therefore, of arbitration are designed to give arbitrators absolute power to make awards that will never be vacated by the courts. The grounds for vacation give all judges discretion to support federal regulatory policy, which policy is to support the franchisor. Judges do not get to the bench who will not support federal regulatory policy which is deemed to support the greater good for the people. The franchisors have had a nice ride on the law since the rule was introduced in the late 70's.

Poster "30" indicates that the the status quo is "accurately reflective of how the current impotent farce throws the regulatory policy and court systems into disrepute."

I agree. The farce and the lie of the UFOC, when it becomes public knowledge, does undermine the confidence of the public in its government and in its courts. We need hearings in the Congress to shed light on this ugly public policy that has existed for over 30 years through many administrations.

The Item 20 Ranter is not going to let his opinion be swayed by facts or accuracy and how dare you suggest that it is important for him to do so. 

Histrionics are the basis for Item 20 Ranter rants let's get that straight.

The Truth Shall Set You Free!

TIF

Guest writes: Sure hope lots of our veterans didn't come home to lose their homes posted as collateral to pick up dog shit.

Well, if they do buy such a franchise that is their own fault.

I am well aware of how the "SBA Registry" is mis-used as a government endorsement, but you can hardly blame the SBA if people feel the need to pay a $30,000 franchise fee for someone to tell them how to pick up doggie doo.

For gods sake, at some point one must accept that a fool and his money are soon parted. There are enough legitimate issues of franchisor overreaching without having to cite "crappy" franchise systems and the fools who buy them.

In retrospect, franchisees who have failed can think of many questions they should have asked, etc.. But, as "Do Diligence" indicates, potential franchisees are looking for "positives" and not "negatives" and, of course, negatives concerning the viability of the franchise are not disclosed or required to be disclosed under the Rule and state UFOC's.

If you understand, however, that, of the 23 Items in the UFOC, only two of them ineffectively deal with the franchise itself and the possible risks and rewards, you understand that the UFOC is a Red Herring that diverts the attention of the buyer of the franchise from the known risk factor of the franchise itself to the charactor and reputation of the franchisor, the seller.

When no earnings figures are disclosed in Item 19, and when complete failures can be obscured in Item 20, the risk factor is obscured. Common sense tells you that franshisors would advertisee the success of their first-owners if most first owners were generally successful but the UFOC is designed to ignore the known risk of success or failure, as demonstrated by the success or failure of first-owners of franchises.

The FTC makes a big FUSS over "false earnings claims" etc.. because to make a false earnings claim is to make a false statement about the success of the franchise. The UFOC is DESIGNED to bring franchisees to sign a franchise contract in which they agree that they are investing at 100% risk of failure.

The FTC understands that franchising is very risky for franchisees, as does the SBA, but franchisors can beat the odds of failure of the small business because they greatly reduce their risk because the risk of building and operating physical units that wear the brand name is bourn by franchisees,

New concepts such as 123 Fitness tend to "overseed" when they start out with the calculated view that if enough seeds catch and germinate, this permits the franchisor to become visible and then
the franchisor can grow because of visibility of his brand name. The failures are almost always silent and if their assets go on to serve the franchisor, only the franchisee has failed.

More than Product, More than Top Leadership, the history of the indiviual franchisees in terms of present and past performance statistics of their units needs to be disclosed under the law. Then, product and leadership becaome very important considerations. Character and Leadership do not pay the bills for unviable franchises.

Years ago, before Blue MauMau was even a concept, a quick-print franchise investor was bleeding a lot of money and reviewing how he had gotten into his predicament. His store had done fairly well as far as following system standards, with the exception of being deducted for poor profit showings. This ex-CFO had headed up a famous stock exchange and looked at Return on Investment measurements as a matter of routine.

"I poured through the UFOC to see ex-franchisees. There was no listing in my city. I asked the closest existing franchises if they knew of any ex-franchisees here or close by. No one knew of anyone. I asked the franchise development director. He knew of no one. I looked at various resources. Nothing."

Now two years into my sinking investment, I find that there were 3 stores in this city that failed. The last one not long before me. Are you telling me that corporate had no record of those stores and owners? How the hell am I as an investor supposed to know the risk of what I'm investing in?

It was a good question and factored in as I created marketing research questions to determine how much of a hole there was for straight answers and the market's desire for such investment information.

In my research, my friend was not alone.

One way to help find what the franchisor didn't say was to set up a network where franchisees in every town and city could feel safe in reporting what they know.

It is my intent to eventually build the Blue MauMau platform by franchise and geography so that my friend and others like him can get a straight answer to their question, "was there a store in my neighborhood before me and what happened?"