The AAFD Has Graded About 60 Franchise Agreements
Recently a Bluemaumau guest asked the following question:
Mr. Purvin: How many have you "reviewed and graded as conforming to the AAFD Standards"? This is the top 5 of a list containing how many, total?
This is an excellent question, and bears response.
In total, the AAFD has graded about 60 franchise agreements, usually at the request of a franchisee association, but sometimes at the request of a franchisor that is considering trying to earn AAFD Accreditation. Only 18 brands have scored better than 80% against the AAFD Standards, and only 5 brands have scored above 90% compliant with the AAFD Standards.
Most agreements we grade receive a D or F Grade (below 60% conforming to our standards).
To earn AAFD Accredited Contract Status, an agreement must 'substantially conform' to the AAFD Fair Franchising Standards, and we at set that bar at 95% conforming. Expetec, Settle Inns and Cuppy's all scored about 99%. Meineke is the highest scoring mature brand, with a score of about 97%. The hotel brands that have earned the AAFD Fair Franchising Seal scored in the 80's.
The highest graded contracts have all been negotiated, and though not impossible, it would be hard to imagine an agreement scoring high that has not been a product of collective bargaining.
Having an AAFD approved contract is an important, but NOT the only important consideration in purchasing a franchise.
However, AAFD approved contracts deliver all of the rights that franchisee advocates have sought for years -- rights that have not been delivered through legislation or litigation, but are being achieved through negotiation.
After determining that the business model and brand are sound, Prospective Franchisees should adopt the mantra "I'll only invest if your agreement is AAFD Accredited." Existing franchisees should spread this advice -- only then will the marketplace demand fair and balanced franchise agreements that protect franchisees when things go South.
There are a lot of Cuppy's franchisees who were able to secure refunds because of the AAFD Accredited contract that they signed, and there are several commentators on Bluemaumau who consistently forget (or ignore) this important fact!
Adding to My Blog about AAFD Grading
After posting my report about AAFD Graded contracts last evening, it occurred to me that I failed to report that virtually all of the agreements that ultimately received good grading reports had started out with poor grades. Each of the companies that have earned AAFD Accreditation began with much lower grades, and have increased their grades through the negotiation process.
It occurred to me that some readers might have assumed that 18 out of 60 contracts receiving AAFD Accreditation to be a high percentage, but in reality we were able to coax these 18 companies to vastly improve their contracts for the benefit of their franchise owners.
Bob Purvin
Chairman
American Association of Franchisees and Franchise Dealers
Re: AAFD Grading
Just curious Bob, have any of the 42 systems that you graded that didn't receive accredidation have as many problems as Cuppy's? If not, then maybe the problem isn't with their agreements, it's with the AAFD grading policy.
Grading
jd, you are missing the point. There are many franchise systems which have scored well, after the AAFD helped the franchisees re do the contract.
None of these systems have run into the problems that Cuppy's has had.
What does this tell you?
Michael Webster PhD LLB
Franchise News
AAFD Grading
...we were able to coax these 18 companies to vastly improve their contracts for the benefit of their franchise owners.
Any chance you could coax companies like Cuppy's not to circumvent franchise disclosure laws by using their construction entity to collect franchise fees without disclosure?
Franchise Disclosure Laws
Do you want to be specific in your allegations or are you just shooting in the dark?
Michael Webster PhD LLB
Franchise News
What about escrows?
you state that you deliver all of the rights that franchisee advocates have sought for years, but you don't recommend them escrowing initial franchise fees.
I would think that this would be an oversight, but even your own standards stated that it was proposed by the subcommittee, but wasn't adopted. Could you please explain why?
This could have helped out the people that lost their money and are being refunded in installments. The State of California required Cuppy's to escrow. They seem to have done a better job protecting these franchisees than the AAFD did.
Escrow Standard
jd, I would vote against an escrow requirement as a matter of fairness.
Various states who review the financial information of a franchise system can require the initial fees be held in escrow.
But, I am opposed to having franchise systems as a matter of fairness escrow the initial fees.
However, even if we did have a standard which did not require the automatic escrowing of fees, we could have required Cuppy's to do so in order to get the accredited status - our bad that we didn't.
Michael Webster PhD LLB
Franchise News
Escrows
JD,
It is important to remember that the AAFD Standards committee consists of three representative and equal voting blocks--
1. Franchisees
2. Franchisors
3. Attornies
Without a majority approval from each of these groups, all of whom must be present to produce a quorum, a proposed standard does not get adopted. Often times, two of the three groups may find a proposed standard acceptable only to be unable to convince the third...Hope this helps explain the current absence of an "escrow standard".
An unfortunate legacy
Mr. Purvin says: "Prospective Franchisees should adopt the mantra 'I'll only invest if your agreement is AAFD Accredited.' Existing franchisees should spread this advice -- only then will the marketplace demand fair and balanced franchise agreements that protect franchisees when things go South."
The granting of an award and, more importantly, the ongoing defense of this obviously troubled and troubling company make it more likely that Prospective Franchisees will see AAFD contract accreditation as a reason to flee. After all, who wants to be blessed with the same fate as a Cuppy's franchisee?
Mr Purvin praises Cuppy's and trashes McDonalds... Yet who would take a Cuppy's franchise over a McDonald's franchise? AAFD credibility diminishes with every post.
Why doesn't the AAFD require a quorum for public statements and interviews like this? This sad and minimally important controversy will sadly become the AAFD's legacy.
Troubled Legacy
Guest is making a good point.
Michael Webster PhD LLB
Franchise News