Sixteen Tons and Whadaya Get?

Buyers Need to See the Franchise Risks Before They Assume the Risks  

Tennessee Ernie Ford wrote the book on franchise due diligence, but nobody gives him credit for it. In his song “Sixteen Tons”, he stated the fundamental principles of small business investment due diligence as follows:            

“If ya see me comin, better step aside.
A lotta men didn’t and a lotta men died.
One fist of iron, the other of steel,
If the right one don get ya then the left one will.”

The concept of seeing – sight – insight – is critical. Reading without comprehension won’t work. But if you do see the risks, you can step aside. You have to see the risks before you assume the risks. You can just decline to sign.

I DECLINE TO SIGN!

Make a bumper sticker and drive around with it on your car.

If you see the risks and you sign anyway, you will get killed because you have willingly accepted the risks. There is no such thing as “I saw the risks and I didn’t willingly accept them, but I signed up because it was take it or leave it.” That isn’t logic. That isn’t intelligent. That isn’t how life or the law works.

If you are a lawyer, you had better be forthright in explaining this to your potential franchisee clients, because the time is coming when their failure will be followed by lawsuits against you claiming that you were really a very nice person, but utterly useless when it came to explaining to them what the risks were that they hired you to sort out and explain.          

You had better explain it in writing, and that writing has to be something that you want read aloud to the malpractice jury and the Disciplinary Committee of your State Bar Association.          

You won’t be able to escape professional liability by claiming that they didn’t hire you to do due diligence. They only hired you to “read the contract”. If your client is unwilling to pony up for counseling competence and you take the small fee and don’t do a thorough job, don’t expect sympathy. You won’t get it. You do the job if you take the fee. You could have declined to be retained for any reason you like. But you didn’t. You took the fee and failed to do a complete job.

GET OUT THE VASELENE!

You’re gonna need it. And you will well deserve what is done to you.          

Learn what you have to examine. Learn where to find it. Learn how contract clauses interact with each other to present a liability “profile” that may not be obvious when you look at contracts one paragraph at a time. Learn to have nerve endings that are sensitive to capabilities that would be pernicious in financial impact if allowed in the hands of an opportunistic franchisor.

LEARN THAT FRANCHISORS WILL CONTINUE TO USE RIDICULOUS CONTRACT TERMS SO LONG AS THERE ARE BUYERS OUT THERE WHO WILL SIGN THEM.

Be assured that they will certainly claim against you that if you had made it clear what the risks of bad contract terms really were, they never would have signed the franchise agreement. There is an awful laundry list of direct examination questions to which every answer your client gives will be “NO HE DIDN’T!”  Because that is your risk profile in representing franchise investors, forcefully stated letters to clients explaining the risks in the terms in which they need to be described is your only safe harbour.          

Learn to be explicit. What you might effectively say to another lawyer or to a financial analyst will not be effective to explain anything in real terms to the people who come to you for help regarding franchise investment. Being “nice” is the worst thing you can do to them or to yourself. Some very “nice” person lied his ass off trying to sell them a franchise. He was believable to them. You have to disabuse them of the untruths – and you have to find the untruths in order to do that. There is a point that has to be made and they hired you to make it. If they get annoyed and fire you, that’s just fine. Do what you offered to do – the Full Monty - and do it forcefully. Make their minds right. Be able to explain to the judge, jury, arbitrator, disciplinary committee just how aggressive your client management regimen is when it comes to vetting small business investment.  You will then have to make the deciding people absolutely certain that what you do and how you do it is without question the right thing to do and the right way to do it. You can be nice in bed and at dinner.          

You confront franchise investment the same way you confront guys who want to take your 16 year old daughter to a drive in movie.

Nuff said?