Sona MedSpa Has Aversion for Standard Accounting Practices
Sona Advocated Cash Accounting in Lieu of GAAP
Writer's Note: A previous Sona article in Blue MauMau sparked a considerable number of questions regarding Sona MedSpa's accounting methods as shown in its Uniform Franchise Offering Circular. By way of further clarification, I'm contributing to the ongoing discussion by providing Sona's 2003 UFOC and a franchisee interview regarding it. The pdf file that was mostly image was converted by Mr. Blue MauMau to a pdf text file by an OCE text reader to shrink the memory space used. As a result, some of the text has typographical errors, e.g., franchisee can sometimes read franchmee.
FRANKLIN, Tenn. (Blue MauMau) - The UFOC of Sona MedSpa (pdf, 203 pgs) shows how its financial statements were not based on General Accepted Accounting Principles (GAAP), says a franchisee. The franchisee explained that the reason people became enticed by the business concept was that when they looked at the UFOC, they saw financials that were cash based. GAAP observes accrual accounting, in which revenues must be matched in a timely fashion to expenses associated with the delivery of services. He said Sona tells you that 93 to 95 percent of the time it would take five treatments for the hair removal process, which is a very complex medical issue. So when franchisees sell packages of five treatments, they don't fully recognize that it takes 12 to 19 months to deliver those services. He said, "They showed cash-based numbers, so it was very deceiving to even those who had high-level executive backgrounds." He said he knows of two franchisees who were CPAs and they didn't figure it out until they were well into the franchise.
The franchisee explained that Sona tells franchisees that they have to continually promote to get new clients, which is another huge expense, and by doing so you are then able to fund future treatments. But he said you soon realize you are going to run out of money if you continue to operate the way they want you to. Even though Sona knows you will have the expense of supplying the treatment later, he said it takes out its royalties from your upfront money.
| Attachment | Size |
|---|---|
| Sona UFOC'03.pdf | 1.55 MB |
UFOC States Earnings Are Cash Based
At first glance I don't see Sona Medspa trickery in regards to accounting practice.
The accountant, James Hammond, says on pdf file page 192, "I conducted my audit in accordance with auditing standards generally accepted in the United States of America." The financials of Sona Medspa head office look like they are accrual-based.
Sales, cost and earnings statement for the stores start on pdf page 192. Page 203 specifically says about these center earnings statements, "You should note that the statements are cash flow statements, not accrual statements."
Frankman
Sona stupidity?
[Note:I don't see the attachment (the UFOC) which you reference. Could you please post link to the attachment? Thx.]
How could they not "fully recognize" the time frame. Your doctor says "You will have to come back 5 times to get the procedure completed" and you don't inquire about a time frame??
If you are a CPA and you don't know the difference between cash and accrual, you shouldn't be a CPA in the first place. And if you know you should be using accrual, but use cash instead, then you reap what you sow.
So, since Client A didn't pay enough to cover the expense of the 5-treatment program, you get Client B and take that money to fund your expense to provide treatments to Client A, and of course Client C pays money to fund the treatments for client B... The franchisor tells you this at the outset, and you still buy?
Not to be mean, but as one who is supportive of franchisees, even I must say these people are some of the dumbest folks I have seen. I am deeply suspicious of Jim Amos, and of the whole concept of medical franchises, and I am not surprised to hear that Jim has bagged a a few more suckers, but... I've got a 3 year-old niece smarter than these franchisees.
I would remind everyone.....
that this SAME issue has been addressed in the past with many of the internet companies having to 'restate' their financials because they posted 'future earnings' as revenues. And yet, the financial giants of wall street and all their experts in the field didn't address this issue with their investors until it hit the fan. It was the SEC that roped this practice in and although it aided in the inevitable deflation of the internet stock bubble, it sent the message loud and clear. A sale isn't a sale until it is EARNED..................to say otherwise is fraud.
I just wanted to remind everyone how easy this very sticky issue can be overlooked by the best of them so we can stop throwing the Sona franchisees under the bus with the blame and name-calling.
Rhino Super Center
Paul is hard on Sona Franchisees
Paul! Maybe, it was because there was so much money involved and because of the credentials of Jim Amos with the IFA, etc.. and his reputation for developing the MBE Stores and selling them to UPS that these franchisees TRUSTED the franchisor of Sona with their capital.
If you read the comments of the plaintiff's in the Sona case that were quoted by Janet Sparks, you understand that it was their trust in Jim Amos as a good Chistian man that put them off guard and made them feel safe in their investment.
Not smart ---but understandable and the personal connection is always a part of the scam.
Sona Accounting!
After reviewing the 2003 Sona MedSpa UFOC --- it becomes pretty easy to understand why franchisees of that 'generation' were unable to understand their accounting needs ---
Anyone who read that UFOC and then signed that agreement (as is) obviously had far MORE MONEY THAN SENSE. My grandaddy always said:
This would certainly seem to be applicable in the case of SONA & its early franchisees.
Personally I am not opposed to franchising concepts like Sona, and they can be very lucrative opportunities for the right Zee, IF proper guidelines, franchisee selection, training etc... are in place and strictly enforced. Nor do I believe that Jim Amos or Heather Rose are as bad as they have been made out to be. I will say that ANYONE who signed the above referenced agreement may honest - may be nice - may be a lot of things, but definately NOT the brightest bulb in the chandelier (at least when it comes to understanding a franchise agreement).
Believe & Succeed,
Dale
FranSynergy, Inc.
Synergizing Franchising!
www.fransynergy.com
Sona a Very Complex Story
First this is an extremely complex story. This is a story, which included a large part franchisor (Jones, Amos, and Rose) appeals to God (Evangelism) and Country as somehow justifying what franchisees were being told. Not only did CPAs get involved here as franchisees; but there were also CEOs of large companies and Doctors (MDs) who bought into the Sona model. Credit must go to the franchisor; who developed this elaborate medically complex charade.
Franchisees were told that Sona had a superior methodology for removing all hair with laser hair removal; which would yield a 93% to 97% removal of hair in five treatments no matter what hair color, or skin tone. They were told this was supported by a huge proprietary data base of 50,000 patients. The truth is that none of this was or has been medically proven; and there are actually an indeterminate number of laser hair removal treatments required depending on the individual. This is according to the American Society of Dermatology which has studied extensively the process of laser hair removal. This was reflected in the Coady arbitration result.
In the initial sale all numbers were represented to prospective franchisees on a cash basis. In the UFOC (p. 200) you will see cash sales numbers for several existing corporate owned stores and franchisees. On the next page you will see expense numbers for corporate owned stores at various sales levels. Yes, there are warning footnotes; but everyone was told this is what they could expect. Accrual accounting was only mentioned as something you used for tax purposes. During the tenure of Dennis Jones et al and Amos and Rose all that was ever talked about were the cash based sales numbers. Indeed, the royalties came out of these cash based numbers upfront before the services had been rendered.
This “purported” superior process called the SonaConcept took 12 to 19 months to complete. Packages of five treatments with a purported 93% to 97% success were sold to consumers. The consumers who complained about lack of results were told by franchisees, which had been told by Sona the franchisor that they really needed to see the process through and be sure that their treatments matched Sona’s known hair growth schedule. By the time 12 months or more had gone by the franchisee found themselves locked in to a huge unfunded consumer liability based on previous five treatment packages sold. In addition, the consumers demanded more treatments, because 5 treatments simply did not work in almost all cases. The only way to fund this mounting liability was to sell more laser hair removal first time clients.
There was a chorus of early franchisee complaints (litigation, attorney general actions) against Sona the franchisor. Despite this fact, the Sona franchisor would sell more franchises. Jones, Amos, and Rose made these sales on the recommendations of the seeming “fantastic” cash flow success of “new” franchisees early in their tenure, that is, open less than 12 months. As mentioned Sona the franchisor advocated running the business on a cash basis with little regard to GAAP accepted accrual based accounting where funds would have been reserved for future treatments. Eventually, all franchisees found that the expenses of running the business exceeded both the Cash and of course the Accrual Revenues from the business. There simply was no money to be reserved to cover future services. The only way franchisees supported their businesses was by adding new lasers and in some cases building new centers and by adding more first time clients. Eventually though this deck of cards crashed, as franchisees ran out of money.
All Sona franchisees, which made it that far, began to fail soon after their 2nd year in business. This included the Sona’s oldest flagship franchisee in St. Louis, MO. Early on the latter was the St. Louis, MO franchise they pointed to when they sold to other franchisee prospects. Most families lost their entire life savings. All franchisees under the Sona model will eventually fail.
Sona the franchisor needed to keep selling franchises though in order to generate more cash from the franchisees and royalties from these new franchisees. Therefore, despite their awareness of franchise failures and increasing litigation; attorney general actions to protect consumers when Sonas failed and did not deliver their promise to consumers; the franchisor (Jones, Amos, and Rose) continued to/continue to (Rose) sell franchises.
Under the Bus.
There is a big difference between a publicly traded internet company and a small locally owned and operated franchise business.
You have a background in Accounting!
It's really simple ... here at FranSynergy client can pay us by the month or they can save a little and pre-pay for the year. When they prepay - the pre-payment goes into a a 'reserve' account totally seperate from our operating account. On the first of each month we write ourselves a check from the 'reserve' acount equal to 1/12 of the amount paid times the number of active clients who have pre-paid which is then deposited into the genral account.
You would think that most anyone could figure out that if you get paid $500 in advance for 5 treatments spread over 12 months, and you expect to do this in large volumes --- it might be a good idea to do something similiar. This however is 'poor management' by the franchisee and I'd guess much more of an 'excuse' than anything. If a franchisee had an accountant who let them do otherwise shame on them. If SONA taught otherwise shame on them. Ultimately it is shame on the franchisee for not tending to this aspect of owning and operating a business more effectively.
However the MUCH BIGGER question to me is how anyone could agree to the overall 2003 agreement! So I agree don't throw people under the bus for being a bad accountant, but don't feel too sorry for people who get run over by the bus when they fail to read and understand agreements which they are signing and fail to obtain competent financial guidance.
It should also be noted that in 2003 Jim Amos and Heather Rose were not running Sona MedSpa.
Believe & Succeed,
Dale
FranSynergy, Inc.
Synergizing Franchising!
www.fransynergy.com
Sona's Misleading Founder
The following excerpts are taken from a Bison.com interview of Sona's Founder Dennis R. Jones in 2003:
"Sona’s rapid growth is unprecedented in franchise history. Sona started franchising in June of 2002 and currently has 145 centers under contract, making it the largest laser hair removal company in the world. That’s going from zero to 145 in just 17 months!"
"The patented Sona Concept determines the timing of the area’s growing phase and then treats that area accordingly. That’s what makes us so very successful in what we do.”
"Our profit is through revenue sharing, so we only make money when the franchisee is successful."
"Sona Laser Centers operate at 60% gross profit, and all but two franchise centers have had a positive cash flow from the first month of opening."
(Note from Guest: Founder, Dennis Jones, and CFO, Tom Noon, advised franchisees that it was a legal and acceptable practice to use the cash flow from deferred revenues for operating capital. Most, if not all, of the franchisees had ever seen a business model whose sales were derived totally from deferred revenues. Unfortunately, the franchisees had relied on the franchisor and his accountant to explain the UFOC document and its Earnings Claim.)
HHMMMM........Maybe you
HHMMMM........Maybe you should have contacted the MBE franchisees.
We did contact many of you :)
Outrageous Franchise Fees
The Sona Medspa franchise agreement is on pdf page 71. Of note is the royalty payments on page 78. It says, "You must pay us [franchisor] a laser placement, servicing, marketing and consulting fee equal to 27.5% of LCP Sales". The lower the revenues of the franchisee, the higher it must pay in royalty - up to 27.5%. If you are a franchisee pulling in consistently over $100k/mo ($1.2 million per year), you can pay as low as 17.5%.
Then, of course, the agreements lists all the other franchisor fees to be paid.
How could a prospective franchisee sign such an agreement? And how could a franchisor in good conscience ask it?
Frankman
Tough Love
I agree with Frankman...a bit of tough love is in order. Franchisees must assume some responsibility here; your state regulator is not your momma.
Sona franchisees were (with some exceptions) fairly well-educated, financially successful people. There are a lot of instances of franchisors fleecing vulnerable people, but that doesn't appear to be the case with Sona MedSpa.
To date, the publicly-disclosed documents leave zee-side advocates to wonder how these folks managed to tie their shoelaces, let alone buy an expensive franchise.
As to your thoughts:
It reminds me of Times Square (pre-Disney) where the 3 card monte dealers and "Rolex" salesmen would part gullible tourists from their cash. Much as Jim Amos would cringe at the analogy: a biologist would find such behavior evolutionary adaptive; a fool and his money being parted does have some upside for the species.
If anything, these Sona zees are an argument against franchise legislation insofar as one finds validity in the moral hazard considerations in legislation and jurisprudence.
You can't entirely fault Amos for plucking the ripe fruit.
Dale: Yes and No
Yes, one wonders why anyone would sign the agreement.
No, it is not the bigger question. You find it to be so because you don't practice voodo accounting the way the Sona franchisees did. As a result, if you don't provide product to your customers, you can give them a pro-rata refund. On the other hand, the Sona franchisees spent money that they hadn't earned, and then complain that they don't have the money to refund to the customers who paid for these medically-worthless procedures.
Franchisors Continue to sell Sona franchises --Complex Old Story
In the last paragraph, the Sona guest explains that "Therefore, despite their awareness of franchise failures and increasing litigation' attorney general actions to protect consumers when Sonas failed and did not deliver their promise to consumers' the franchisor (Jones, Amos, and Rose) continued to/continue to (Rose) sell franchises.
And, we might add, continue to use PR and the spin on the Arbitration Award for negligent misrepresentation to spin the "value" of the Sona franchise.
Just more of the same but some franchisors get special dispensation under the law to sell unviable and unsafe concepts to the public and government turns a blind eye to the practice.
If these Sona franchisees didn't come up with the royalties, Sona Corporate would have had an injunction from the courts before you could bat an eye.
It appears that some people's money is more important than other people's money and there is an imbalance of power in the franchisor-franchisee relationship that is public policy and supported by the rule of law and the status quo.
Sona: Seeing What We Want To See
Written warnings in big blocks ignored. An intelligent buyer (along with his financial advisor?) accepting that accrual accounting is only meant for tax purposes??
Wow!!
Talk about selectively seeing what one wants to see - stars in our eyes over a franchise concept. I understand how doctors might buy into someone with probably a liberal arts background erroneously explaining accounting principles in order to sell a store. But what is amazing is that bright MBAs like the Coadys bit off on such stuff. And according to a guest, CPAs too.
What kind of dispassionate advisor would let this stuff get by them? Over-worked? Ill-informed?
Frankman
Sona frying pan
The dubious medical claims are potentially of use to zee litigants. The problem is that to draw attention to the matter is to go from the frying pan into the fire.
If zees admit in pleadings that Sona is retailing snake oil, the customers will demand their money back and likely commence a blizzard of lawsuits. Since the zees already spent the customer's money, it is in the interest of the zees just to continue giving these "treatments". In addition, highlighting the medical question will make it impossible to sell their outlets.
Dale Nabors says he hasn't seen franchise laws used to hide or deceive. As happens with disturbing regularity on this site, Dale is wrong and I am right ;) (information overload, the FTC disclaimer page pitched as an implicit endorsement at sales meetings, etc), but regardless of whether Dale or I is correct in the abstract, in this specific case there doesn't seem to be an issue of deception on the main point of Sona franchisee discontent.
There are good reasons for the passage of franchise relationship legislation. But nobody on the franchisee-side is going to man the barricades defending these Sona franchisees, because folks like Flanagan, French, or Seid would quite effectively seize upon such defense and ridicule it-- rightfully so.
There are a lot of horror stories that support zee-side advocates. But, much as I would like nothing better than highlighting another example of how Amos suckered hapless franchisees... Sona ain't one of 'em.
The Size of a company
really has no bearring on which accounting method to use. Accrual is the most widely used and accepted method because it is the most 'realistic' when financials are used to demonstrate the health and trends of any business. I too am at a loss as to why SONA's accountants would even set up the business under the cash method especially given the fact that the business model requires prepayment for services that won't be 'earned' for such a length of time. However, I can see the method being used so as to give a false image of profitability which gives me a very low opinion of both the company and their accountants who were involved in this. They have done their profession and the franchisees a great disservice.
Rhino Super Center
Tough Love and Sona and Ineffective Regulation
It is comforting to know that even those people with great amounts of money are led into a false sense of security by government regulation of franchising.
When they and their attorneys(?) looked at the UFOC and the franchise agreement, they apparently thought that the terms of the agreement were not negotiable and that if they wanted to get "in on" making a lot of money, this was the only deal in town.
It would be interesting to hear from the Sona franchisees who suffered great losses from the Sona deal!
I assume the franchisors of Sona put lots of money in their pockets from the pockets of the Sona franchisees.
While you attorneys who post on Blue Mau Mau have seen everything and are suspicious by nature of those who would pick your pocket while they are shaking your hand, the average purchaser of a franchise doesn't come from this position.
Frankman isn't an attorney but he is cynical or "realistic" by nature and "street smart.!
Come on! Give the Sona franchisees a break. If they were fleeced, they were fleeced by experts.
Cash Flow is King.
The reason that I suggest that the signing of THE AGREEMENT is the BIGGER QUESTION comes down to if one does not sign the LAME agreement one is not concerned with the accounting issues.
Bad Agreement = Shame on Franchisor for creating & Shame on Franchisee for signing.
Bad Accounting, spending money not yet earned, not maintaining reserves for future services etc... bad business management by franchisee. Shame on Zor if this is what they taught Zor -- but CASH FLOW is the responsibility of the ZEE.
NOTE: If you're in business Cash Flow is KING. A business can operate way to long with poor profitability, but CASH FLOW WILL GETTCHA QUICK.
Believe & Succeed,
Dale
FranSynergy, Inc.
Synergizing Franchising!
www.fransynergy.com
Does the tube run directly from the IFA to the FTC
One wonders?
A Sona Note:
It should be noted that:
It would seem to me that the Arbitrator simply awarded the cost incurred by Coady in performing the extra procedures required to remove the hair, because SONA had not disclosed the fact that they'd discovered the information to be false.
Believe & Succeed,
Dale
FranSynergy, Inc.
Synergizing Franchising!
www.fransynergy.com
commission dependent
"What kind of dispassionate advisor would let this
stuff get by them? Over-worked? Ill-informed?"
One who's commission check depends on a transaction.
FRANMASTER
Mr. Frankman the Answer is Simple
The franchise laws as they exist were used to mask the truth. No franchisee results we were told could be presented. No accrual results from corporate owned centers were presented as part of the UFOC. In simple fact people were lied to or truth distorted by franchisor representatives with seemingly great credibility.
Tough Love ----False sense of Security UFOC
I think Paul Steinberg and the Minister for Industry of the United Kingdom would agree. The Minister has suggested that government regulation might present the appearance of government endorsement and provide a false sense of security for British citizens. The government of the UK does not regulate franchising.
Government regulation does, perhaps, present a false sense of security to "marks" and "if anything, these Sona zees are an argument against franchnise legislaton insofar as one finds validity in the moral hazard considerations in legislation and jurisprudence."
Tinker - I agree!
I agree with you entirely. My reference to the difference between a Public Comany and a small franchised company had to do with your comparison between the Sona situation and the Internet Companies.
I may be mistaken but aren't public companies now required to use accrual as their method of accounting?
Believe & Succeed,
Dale
FranSynergy, Inc.
Synergizing Franchising!
www.fransynergy.com
Paul Doesn't Get It
All sona franchisees were lied to about the fundamental science of laser hair removal, that is, timing of treatments, number of treatments, and even the types of people that can be treated (for example, lasers do not work on blonde, grey haired people or fine velous hair on darker skin tone facial hair). Did each franchisee need to hire their own Dermatologist to tell them these were falsehoods or wasn't it the responsibility of the Sona franchisor (Jones, Amos, Rose)and Carousel Capital Partners II (Schwabb, Pitt, and Schmidley) to know the truth through their due diligence and to to then the truth to frnchisees?? When one buys a MacDonalds is it their responsibility to check every shipment for rancid meat (Not that I believe this is ever necessary!!). The fraudulent science misrepresented in the financials is what caused the business failures. Mr. Steinberg I admire a person like yourself, who has been able throughout life to always detect those who are lying to him. In this case, the lies were BIG so even suspecting they were lies was hard to fathom, that is, at their corporate centers they were already treating thousands of patients. the problem is even they were new and it took 12 to 19 months to see the problems.
I have to disagree with the following.....
"You can't entirely fault Amos for plucking the ripe fruit"
If a man stands in front of you with his wallet sticking out his back pocket, some may call him careless, naive or even stupid.................but the man who STEALS that wallet is still a THIEF. The victims naivete or lack of due dilligence does not make his crime any less a CRIME.
Rhino Super Center
REMEMBER SONA MED SPA EQUALS...
JIM AMOS & DARLING HEATHER ROSE = ANOTHER FAMILY RUN SCAM..THE FAMILY THAT SCAMS TOGETHER PRAYS TOGETHER ISNT THAT RIGHT JIMBO ??
I agree
Stop blaming the victims as if fraud is somehow minimized if the victim can be portrayed as an idiot. It's just ridiculous how some try to set the bar of responsibility so low for the perpetrators of these frauds. Why are you defending these people at the same time you keep shouting that the franchise industry doesn't need regulations. Don't you realize that these are exactly the people and companies that give the industry a blackeye?
Rhino Super Center
Well, with all due repsect how could you buy a Sona?
"The franchise laws as they exist were used to mask the truth. No franchisee results we were told could be presented. No accrual results from corporate owned centers were presented as part of the UFOC. In simple fact people were lied to or truth distorted by franchisor representatives with seemingly great credibility."
What evidence could you have based your decision on?
Lemmings
There is no indication from the Sona UFOC that the zor was not compliant with GAAP. However:
Even assuming the zor and all of the other franchisees were doing bogus accounting doesn't mean you had to. I don't doubt that the Sona folks were full of bs, but...
Businesses which spend unearned revenue can hardly claim that "the franchise laws as they exist" forced them to spend the money. Businesses who use CPAs that don't know when cash basis accounting is not appropriate (!!!) can not claim that "the franchise laws" excuse them.
There are 2 separate issues here.
Had the franchisees only spent customer money as they provided each treatment, they would still have gone out of business. True.
But, they spent money which they had not yet earned. Any way you slice it, they took money which was not theirs to take. Even if Sona was cooking the books (and that does not appear to be one of Sona's many shortcomings) that does not mean the franchisees had to follow suit.
Why can't the franchisee victims of the franchisor admit that the public customers who placed their trust (and money) in the hands of the franchisees were victimized in turn.
How much can I make?
I do not see, nor have I heard where any franchise laws were used to mask the truth.
It does sound as if misinformation was provided initially out of either a lack of varified knowledge or intentionally and that this same false information continued to be spread after it was definately known to be false. This is would be a 'human' act and have nothing to do with the truth being masked. Around here we call it lying, fraud, deceit, and misrepresentation.
I think a lot of franchisors, web designers and even young in-house legal counsel make statements similiar to this one, which I lifted right off of a major food franchisors site just now:
Of course most of us here at Bluemaumau knows that this is not "exactly the truth. Any franchise candidate could search on the question and quickly come to that same conclusion.
I personally do not buy into 'Accrual' not being shown in the UFOC or elsewhere. CASH FLOW, ACCOUNTING, BOOKKEEPING these are all the responsibility of the Franchisee .... based on the investment into a SONA and the payment structures I'd think anyone would quickly realize that they need to keep an eye on the money.
You may have been lied to -- the truth may have been distorted --- by people with seemingly great credibility -- HOWEVER TAKE NOTE:
IF YOU ARE GOING TO MARRY SOMEONE OR GO INTO BUSINESS WITH SOMEONE OR ENTER INTO A LONG TERM RELATIONSHIP WHERE YOU ARE GOING TO GIVE THEM A GREAT DEAL OF YOUR MONEY ---- YOU NEED TO MAKE DAMN SURE YOU KNOW THEM -- WELL!
I'm sorry if you were lied to, and if you believed those lies and bought based on those lies. Perhaps you have some recourse, perhaps you do not. However, each franchisee must be personally accountable for their part, and anyone who read the 2003 SONA UFOC and Agreement and then signed that agreement simply was not THINKING. We all learn from our mistakes, some are costly.
Believe & Succeed,
Dale
FranSynergy, Inc.
Synergizing Franchising!
www.fransynergy.com
How do you know what Paul Steinberg thinks?
I think Paul is capable of posting what he thinks on his own. The Minister for Industry in the UK may or may not agree with Paul on whatever Paul does actually think, and the Minister likely does not plan on posting on Blue Maumau any time soon.
Z-Rube stop making things up, speculating on what others might think and putting words in people's mouths.
Ageless Wit & Observation
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Believe & Succeed,
Dale
FranSynergy, Inc.
Synergizing Franchising!
www.fransynergy.com
My comparison
had to do with the manipulation of revenue figures to defraud those investors who use the information to make decisions; be it investors or franchisees
There is only one reason for a franchisor to use the cash accounting method................and that is to manipulate and thus defraud.
Rhino Super Center
Goose or Goose Egg
I disagree with you as to Paul Getting it. I think Paul gets it. There were a thousand and one reasons (little red flags) contained in the UFOC that should have caused one to pause - think & question.
In performance of due-diligence one should have said "Okay 12 to 19 months of treatment hmmmm who has been open for 12 - 19 months and provided the full range of treatment to ensure that it works? If it had been my investment my wife would have been posing as a client and asking to talk with Satisfied Customers who had received the full range of treatment.
You do not invest a $1.5 million into a McDonalds if you've never tasted a Big Mac --- or at least least spoken with a non-interested party who has.
It's one thing to invest a million dollars in the goose which lays golden eggs ..... it's entirely different to invest a million dollars in a goose-egg which upon hatching (in a year and a half) is supposed to lay golden eggs.
Believe & Succeed,
Dale
FranSynergy, Inc.
Synergizing Franchising!
www.fransynergy.com
No! Only Franchisees are Responsible for Due Diligence
The language in the UFOC's very carefully protects franchisors from any intentional misrepresentations made outside of that contract and for negligent misrepresentations made in context with the contract and the "proven" business plan. You see that in arbitration, all that could be proven was that there was unintentional "negligent misrepresentation" of the medical efficacy of the process ----just an honest mistake!
The UFOC's and the contracts of adhesion have enabled a new art form for defrauding marks that is not considered fraud under law----in my opinion.
Paul Steinberg who is an attorney believes in the law and in contract law but at least he recognizes the consideration for the hazard in government regulation and jurisprudence that is produced for the franchisees. I think!
Ripe Fruit
Well put by our Tinker, the thinker, who takes no lip from those who defend the indefensible.
Victims nobody speaks of
I don't defend Sona, and I criticized both Jim Amos and the lack of relationship legislation at some length back in 2004; I also discussed and criticized the use of religion and fictive kinship in the sale of franchises.
The "Sona a Very Complex Story" post is about the best case I have heard for some actionable conduct, but on the medical claims-- not the accounting matters.
I would like to ask Tinker to consider all the victims here.
Nobody has spoken of the public customers who plunked down thousands of dollars for services to be rendered in the future. Some of the Sona franchisees took that money and spent it without rendering all the services promised. Moreover, I would guess that it was spent for the benefit of the franchisee-fiduciaries of those customer monies; on things ranging from the franchisee "draw" to purchasing new franchises.
I hear that Sona told zees to use cash and not accrual accounting. But I can't find any evidence of that in the UFOC, nor can I find any indication that the Sona franchisees (or their CPAs) protested this violation of GAAP (not to mention possible violation of state consumer protection laws).
Few observers would bother to defend Sona, Amos, or Heather Rose. But the franchisees need to step up to the plate and be held accountable.
Fleecing the Lambs / the Silence of the Lambs
What do the Sona Hair Removal Spas and the Fleecing of the Lambs have in common?
Let's hear more bleating from the fleeced lambs and let them NOT be silenced by the death of their investments or smart-ass attorneys who take joy in laughing at the fleecing.
Tinker is right on!
The trap of the UFOC and the Franchise Agreement ----Sona
Did you believe that the UFOC and the Franchise Agreement were in any way negotiable?
The attorneys and Mr. Nabors of this site always say the same thing ------why did you sign the contract? i.e. you contributed to your failure because you didn't conduct efficient due diligence and you could have not signed the contract or negotiated a better contract with the franchisor, etc.. Why were you such a dummy? And yet, these same people are against any really effective government regulation of franchising. If franchising were regulated as well as securities, probably "Sona" would be out of business by now or maybe they wouldn't have been permitted to sell this concept to begin with.
I can see by your comments that you thought the UFOC as required by law was the bottom line and that these disclosures and terms were not negotiable, etc.. The attorneys and Mr. Nabors indicate that they are negotiable to a point -----but how would one know this?
Apparently, while franchisees believe they are signing a standard contract that applies to all franchisees who are in the same relationship with the franchisor, this isn't true? These contracts can be negotiated, they say!
It appears, however, that the franchisors are allowed to lie and misrepresent outside of the contract because when you sign the contract, you are indicating that only that which is within the four corners of the contract is legally enforceable, etc... The franchisors never indicate that their franchise agreements are in any way negotiable and the franchise agreements, while unconscionable, are legal until proven otherwise. amd after you have been ruined financially, how can you prove "otherwise?"
The UFOC's are actually just a license to steal for predatory franchisors. I'm sorry you had to find out the hard way. I hope you will complain to your State Representatives and Senators and ask them to investigate the fraud that is perpetuated and condoned under current disclosure laws.
That was a quote from Paul Steinberg!
For you who are deaf and dumb, that was a quote from Paul Steinberg's post!
Tinker is Right On ----The truth
I believe Tinker tells the truth. The "cash" was blinding and was meant to be ----"to defraud those investors who use the information to make deisions; be it investors or franchisees."
But, "technically" they cover themselves in the UFOC's under disclosure law.
Morality and the Law
Moral franchisees set themselves up because they believe that the rule of law is always moral, which, of course, it isn't!
Franchising and its immoral practices that are legalized under contract law needs to blame the franchisee by way of blaming them for not doing due diligence to uncover the legalized fraud.
We did all of these steps!
We did do all of the things you suggest, that is, sent the Wife out to check, etc. All seemed right. But we were being told lies about the fundamentals of the business. Sona was/is a master con done by the best. I will give them credit for that fact. You did not know things were wrong until the 5 treatments did not work or patients complained after 12 to 19 months. By then you were deeply invested in a business. Trust me there were brilliant business and other people involved here as franchisees, that is, two very high level former MacDonald's executives, former CEOs and heads of major corporations, CPAs, and MDs. Many of early franchisees brought these failings to the attention of Sona the franchisor (Amos, Rose, Jones) and Carousel Capital (Schwabb, Pitt, and Schmidley). As they came in individually they were told that they simply were not operating right.
Yes, we feel foolish being conned; but we were conned!! My real sorrow is with former MBE, current Quiznos, and other franchisees without the wherewithal to see the truth and to fight for their rights under the currnet franchise laws.
Easy Pickings
Guest, although Tinker's analogy was a good effort --- it's not apples to apples.
There is a difference between a man who takes your wallet, against your will, without you knowing, and
a man who takes your money because you're chomping at the bit to give it to him, even after he's given you a big thick document (that to many said "you might not want to do this") and then made you wait 10 days before accepting your money.
I'm not defending BAD FRANCHISORS, but simply pointing out that there is a different set of precautions which must be taken, and in the eyes of the law it is very different as it should be.
Believe & Succeed,
Dale
FranSynergy, Inc.
Synergizing Franchising!
www.fransynergy.com
Dale This is Where There Should be More Laws
The public and franchise industry does need new laws (not more government) to protect them against people like Jones, Amos, Rose and Carousel Capital Partners II (Schwabb, Pitt, and Schmidley)current owners of Sona. Why is this any different from fraud in the stock market? If you assume each Sona franchisee invested $1 million in their Sona franchise and 18 out of 45 are no longer Sonas. Isn't this an $18 million fraud. Didn't Ken Lay and Jeff Skilling of Enron get convicted of committing a felony and receive jail time (Ken Lay died of course!!). Franchising is a huge ~$2 trillion industry and Sona is symptomaatic of a much larger problem (UPS, Quiznos, Others). What is the difference between stock fraud and what happened in this case. The answers exist and just need responsible members of the franchise industry to implement them.
A model exists throught the Securities and Exchange Commission (SEC) for substantially preventing the medical fraud and negligent misrepresentation conducted by Carousel Capital Partners II and Sona MedSpa and other franchisors and their funding partners. All SEC fund raising documentation whether private place, public offerings or other known SEC based fund raising vehicles require primary evidence for all operational or business statements made. The law firms who help create these fund raising documents are required to receive evidence that all statements made in the document are true. For example, in this case the company and their legal counsel would have been required to get outside medical experts (likely dermatologists) to verify the medical claims being made. In a similar fashion the company and their legal counsel would also have been required to show substantial evidence (from franchisee and owner based centers)that the business claims (financial returns, etc.)were true. The SEC has already laid out the map for conducting due diligence correctly. Why doesn't the franchise industry follow this SEC map??? Likely the Sona MedSpas and Carousel Capital Partners II would not exist if these types of requirements were in place.
Z-Rube Stop making things up!
Z-Rube Comment - "If franchising were regulated as well as securities, probably "Sona" would be out of business by now or maybe they wouldn't have been permitted to sell this concept to begin with."
Z your abvementioned quote is patently untrue since their are plenty of "pink sheets" thinly traded and illiquid stocks sold under securities laws. Securities laws offer little additional protection as compared to State and FTC Rules.
Z-Rube Comment - "I can see by your comments that you thought the UFOC as required by law was the bottom line and that these disclosures and terms were not negotiable, etc.. The attorneys and Mr. Nabors indicate that they are negotiable to a point -----but how would one know this? Apparently, while franchisees believe they are signing a standard contract that applies to all franchisees who are in the same relationship with the franchisor, this isn't true? These contracts can be negotiated, they say!"
Z your abvementioned quote is just more trite crap. All contracts are negotiable