The Franwad Manifesto: The Long March Continues

At approximately 5 pm on Friday, 1st August, at the lovely turn of the century Dearborn Inn in a suburb of Detroit, a nine hour non stop meeting took place amongst Paul Steinberg, Mike Webster and Richard Solomon, attending as Seamus Muldoon. We met to discuss the prospective feasibility of the Franchise Killer Pre-Investment Due Diligence Academy (The FKPIDDA – The Farkapaedia).

Throughout the nine hour session, there was never any dead air. If you stopped talking to breathe, you lost your position, as someone else immediately started speaking, having been holding his breath waiting until you had to inhale.

Amidst the serious analytical conversational bytes there was a great deal of humor. The topics of these relaxing interludes included acerbic ridicule of those who were absent, the manner in which Dale Nabors configured his position in the Cuppy’s abortion, the recent AAFD award of encomia thereto, the last eight years of the Bush administration, and the religious beliefs of everyone other than the discussants.

The most immediate impact resulting from this meeting will be shown on the next quarterly financial report of the Stags Leap Winery.

The only person whose absence was sorely regretted was Sean Kelly. We really didn’t need the rest of you at all.

The result of the meeting

Happily, the result of the meeting was a continuing interest in the development of the Farkapaedia. Its functional potential was confirmed in everyone’s mind, and the requisite financial resources are believed potentially to be available. The UPL difficulties were resolved. Its possible sponsorship by BlueMauMau was discussed and left open, as Mr. BMM his own self was not there to confirm the availability of cojones on that issue.

Conclusion

The meeting adjourned promptly at 2 am on Saturday, 2nd August. It will reconvene when certain issues are closer to resolution and the tab for this first meeting is finally paid off.

Profile picture for user Richard Solomon

Comments

Farkapaedia

Good luck and I wish you great success in your plans. This may be the beginning of something big. Eventually you can advertise on television about educating people about what to do before signing a FA. Why not? Donald Trump and Robert Kiyasaki advertises their seminars. Maybe Solomon can do the advertising with his Texas accent. He sounds good on the telephone.

The only person whose

The only person whose absence was sorely regretted was Sean Kelly.

Feel free  to invite me next time.  I'm pretty sure the statute of limitations has run out on all my outstanding MI warrants.

Then again, as the only non-lawyer there I'm sure I'd not only have gotten stuck with the tab, but billed at your customary hourly rates. 

Sean Kellyseankelly[at]ideafarm.net Franchise  Pick Franchisor Marketing

The only person whose

The only person whose absence was sorely regretted was Sean Kelly.

Feel free  to invite me next time.  I'm pretty sure the statute of limitations has run out on all my outstanding MI warrants.

Then again, as the only non-lawyer there I'm sure I'd not only have gotten stuck with the tab, but billed at your customary hourly rates. 

Sean Kellyseankelly[at]ideafarm.net Franchise  Pick Franchisor Marketing

You definitely will be included next time,

and I never thought of you as someone who reached for a tab. But that's OK. --

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

Franchise Investigations

We will soon have minutes of this meeting, and our overall methods and goals.

Richard and Paul sparred about Zarco's case against Bodorian, but we all agreed that with more franchise preparation companies, templates, and public access, it gets harder to tell from a paper review of the documents what is legitimate and what has been simply lifted from a legitimate business.

Investigations are getting harder and not easier with public access. 

One problem we face is turning around the investigation process so that prospects do not try to use our services just before closing.

We have to make the point that: Pre-purchase investigation not only teaches you about the actual franchise you are interested in, but franchising traps in general.

For example, Richard brought up an interesting case in which a) the franchisee sold contracts to customers that had a monthly incurring revenue, but b) the franchisor "collected and remitted" that revenue.  Strangely enough, the top franchisee in that system hasn't seen any residuals!

This type of collection scheme deserves a;

You might be a Franwad, if you let your franchisor collect all your money and have to ask "please, sir, may I have some more?"You just might be a Franwad, if your franchisor can scoop your bank account. 

 

The next meeting, unfortunately for my wine budget, may be in Toronto.

It will be hard to match Richard's pillaging of the local wine cellars - but I understand that the founders of any joint endeavor are to expected to contribute excess liquid capital.

Michael Webster PhD LLBFranchise News

ACH debit by zor

Webster writes: It will be hard to match Richard's pillaging of the local wine cellars - but I understand that the founders of any joint endeavor are to expected to contribute excess liquid capital.

I was at a disadvantage. My relatives came from Beer Country, though they did have a propensity to get soused and invade France.

On a serious note: most of the large zors do scoop the zee bank account, and my suggestion to people in such cases is that they have a segregated account for the required zor ACH debits. That way, even if there are improper/disputed zor debits, it will not cause you to bounce checks to your vendors/landlord/employees/ect.

 

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

Segregated Operational Accounts

Paul, I have no problems with having 2 or 3 chequing accounts.  But, a number of franchise agreement forbid this, and try to pull everything they can at the end of the day.

The residual story that Richard told is even a worse trick. 

Michael Webster PhD LLBFranchise News

Segregated accounts

I hadn't seen a Franchise Agreement which prohibited this, and I can't see why they would.

I recommend a deposit account (into which all the money goes). Then journal (online) the appropriate royalty/advertising monies, journal the payroll, and journal the rest into the disbursement account. Where sales tax trust funds are high (in my jurisdiction 8.375%) I suggest a savings account and issue a bank check/MO when the funds need to be remitted quarterly.

You don't want your employee payroll checks to have your disbursement or deposit account number on them because nowadays if employees have this info they can cause much mischief before you find out. Better to have a separate payroll account. 

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

Re: Segregated accounts

Gotta agree with Paul on this one. 

From experience on the zor side, we had inadvertently taken too much out via ACH for their royalty payment.  It was a fluke occurence that the person doing the ACH had made the same keying error in the 2 spreadsheets that were the checks and balances that we had in place prior to actually submitting to the bank.  The next day the error was found and was immediately backed out on our side, and the zee was informed.  It was our fault and we covered any bank overdrafts that occured.  There is a human error element to these systems in place.  And for the record we were a smaller zor that didn't have the automation that i'm sure other places had.

Also, I think Paul or Michael mentioned this about a year ago, but if your the gift card program flows through the zees rather than a central account, it's best to have a separate account set-up for that as well. 

Segregated Accounts still big in AL

Maybe that's why Dale's moving Cuppy's.

Segregation was always big there, from what I hear. 

 

Sean Kellyseankelly[at]ideafarm.netFranchise  Pick Franchisor Marketing

Segregated Accounts still big in AL

Maybe that's why Dale's moving Cuppy's.

Segregation was always big there, from what I hear. 

 

Sean Kellyseankelly[at]ideafarm.netFranchise  Pick Franchisor Marketing

If we next meet in Santa Fe, NM,

I will be happy to host the evening again.

Between the Georgia O'Keefe Museo and any number of great restautrants, the meeting should last at least two days - arrive mid afternoon and depart two days later. YUM!

You guys invest in yout airfare and hotels, and I'll handle the food and wine/tequila/etc.

The level of perspicacity was exceeded only by the incredibly wonderful company of two really nice guys.

It is, however, unfortunate that now - three days later - they still aren't spelling that well.--

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

Bane of My Existence

Richard, you have yourself a deal.  New Mexico it is.

Never could spell that well - really have no excuse for it, either. 

Michael Webster PhD LLBFranchise News

Did not want to bring it up at first

but now that it is out in the open, I have noticed your tendency to misspell frequently as well, primarily the words "defense," "color," "license," "center," and "check."  Do not even get me started on aluminum. 

Did not want to bring it up at first

but now that it is out in the open, I have noticed your tendency to misspell frequently as well, primarily the words "defense," "color," "license," "center," and "check."  Do not even get me started on aluminum. 

Bad Spelling

Wait minute - didn't your elected King spell potato, "potatoe"?  What is a few vowels among countries with the longest undefended border and the longest wait to cross the aforesaid undefended border? 

Michael Webster PhD LLBFranchise News

I think we should get the

I think we should get the definitive spelling from SpuddiePie.  Where is he anyway?  How is his lame concept doing these days?  And when is he releasing his tell-all on Solomon?

FuwaFuwaUsagi

It was a joke, Michael

Thanks for referring to my theory that the USA can survive no matter who is in charge--

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

Re: Bad Spelling

Actually, that was a former vice president. The current reigning king probably isn't a spelling bee champ.

Michael is right about a lot of things,

but his most important point - which he first raised at our meeting - is that franchise investors need to become educated about the facts on the ground and what they have to do to avoid being fleeced by the scoundrels.

The point to be made in that education is that it is critically important that you avoid being cheated of all you own in the world rather than being cheated and spending the rest of yout life impotently trying to get back to scratch.

Everyone in here who laments how they were treated in making the wrong investment and ending up broke faces exactly that predicament.

There is no real remedy when you are broke, 99 % of the time.

We will, if we can make this concept work, be able to keep our trainees from getting fleeced. They will keep their money in their own pocckets rather than invest in any offer that can't get past our guerilla due diligence. --

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

Disappointed!

That you esteemed gentlemen did not invite me to your FKPIDDA Gala disappoints me greatly. There are few things I appreciate more than cyclones of franchise related hot wind, particularly when accompanied by excessive volumes of high-quality alcohol.  

Please be sure to invite me the next time you assemble. I am sure I can add much to the discussion, as well as to the cache of "liquid assets". I have a few bottles of Harlan Estate, Screaming Eagle, Ridge Monte Bello, etc. that all need opening by those who would appreciate their exceptional qualities.  If the conversation were to get really intense, I would need to break open my private reserve of 23-year old Pappy Van Winkle's Bourbon!  That famed elixir can change your life (if not end it prematurely)!

-- Mark

_______________________________________________________________

Mark Dubinsky is president of the DD Independent Franchise Owners, Inc. (DDIFO), a franchisee association representing in excess of 1,700 member Dunkin' Donuts franchises. Mark is a former franchisee and CEO of his family's 27-unit Dunkin Donuts Network. He can be reached at [email protected].

Disappointed!

That you esteemed gentlemen did not invite me to your FKPIDDA Gala disappoints me greatly. There are few things I appreciate more than cyclones of franchise related hot wind, particularly when accompanied by excessive volumes of high-quality alcohol.  

Please be sure to invite me the next time you assemble. I am sure I can add much to the discussion, as well as to the cache of "liquid assets". I have a few bottles of Harlan Estate, Screaming Eagle, Ridge Monte Bello, etc. that all need opening by those who would appreciate their exceptional qualities.  If the conversation were to get really intense, I would need to break open my private reserve of 23-year old Pappy Van Winkle's Bourbon!  That famed elixir can change your life (if not end it prematurely)!

-- Mark

_______________________________________________________________

Mark Dubinsky is president of the DD Independent Franchise Owners, Inc. (DDIFO), a franchisee association representing in excess of 1,700 member Dunkin' Donuts franchises. Mark is a former franchisee and CEO of his family's 27-unit Dunkin Donuts Network. He can be reached at [email protected].

Due Diligence

I was having a conversation with fellow franchisees the other day and a question came to mind for Richard (Michael, Paul, Fuwa, et al.):

 

Have you ever given bad investment advise to your clients? Perhaps ‘bad’ is not the proper word, how about: Advice that later turned out to be the wrong choice?

 

In other words, have you ever given advise about a certain franchise chain that after many years of operations changed their business plans where the decisions made benefit only the franchisor. Without a crystal ball, how would you know what changes (good or bad) the franchisor decides to make after years in the industry?

 

Thanks 

Due Diligence

I was having a conversation with fellow franchisees the other day and a question came to mind for Richard (Michael, Paul, Fuwa, et al.):

 

Have you ever given bad investment advise to your clients? Perhaps ‘bad’ is not the proper word, how about: Advice that later turned out to be the wrong choice?

 

In other words, have you ever given advise about a certain franchise chain that after many years of operations changed their business plans where the decisions made benefit only the franchisor. Without a crystal ball, how would you know what changes (good or bad) the franchisor decides to make after years in the industry?

 

Thanks 

Advice given is present tense advice, but it does have some

long term aspects. The franchise agreement is for a term of years, so you are looking at history and trying to project that out over the contract term as best you can. If you're dong it right, you are delving into the industry dynamics what is happening in the market place where this franchise operates - unit proliferation, price competition intensity, what part of the market is its revenue stream dependent upon (e.g., discretionary spending, careful purchasing by knowledgeable customers), what is the history of the company itself and the likelihood of change of ownership during the term of the franchise agreement.--

You also have to take into account the nature and direction of the trends in franchise agreement draftsmanship - they get more draconian over time, not less. A tough agreement with a new franchisor is a big alarm for me. New franchisors have their own early demise risks, and I advise against signing tough contracts where the track record isn't that solid for many years. Also the newer the franchisor, the more I counsel trying to negotiate certain provisions, and being willing to walk away if the terms can't be moderated.

The identity and profile  of the investor also has to be vetted. Who is this person? What risks can he handle that others might not be able to deal with as effectively? Is he a pro or a newbie, for example?

There are other aspects of vetting, and this response could be a blog article if I let it go on and on.

Because of how I do franchise investment due diligence, I have been exceedingly lucky about correctly sorting out the risks. It aint perfect, but it's really good quality. 

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

Bad Choices

Well, as part of the AAFD subcommittee that recommended Cuppy's get an accredited contract status, that qualifies as a terrible recommendation.

Like Richard, I am pretty good at detecting bs systems no matter how they are dressed up, lipstick or no lipstick. 

It is almost impossible to predict a buy-out or systemic change of mangagment more than 3 or 4 years out in the future.

But if you are confident about the quality of the individuals in place, partly because of their demonstrated change of the supply chain, you are less worried.

Your point is an excellent one: it underscores the need for an effective and diligent IndFA. 

Michael Webster PhD LLBFranchise News

Normal 0

It was queried:

I was having a conversation with fellow franchisees the other day and a question came to mind for Richard (Michael, Paul, Fuwa, et al.): 

Have you ever given bad investment advise to your clients? Perhaps ‘bad’ is not the proper word, how about: Advice that later turned out to be the wrong choice? 

In other words, have you ever given advise about a certain franchise chain that after many years of operations changed their business plans where the decisions made benefit only the franchisor. Without a crystal ball, how would you know what changes (good or bad) the franchisor decides to make after years in the industry?

My reply:

Caveat:  This reply is not meant to be “holier than thou” or “high handed” it is just a statement of fact.

I am a bit of an anomaly on this list in that I literally have no horse in this race.  I do not have any perspective zees for clients, nor do I see that changing in the near future.  I participate for personal reasons, not to solicit business. 

I am a business consultant but I cater to a relatively exclusive high end market (no insult is intended) and I am fully booked year around, year in – year out.  I am fortunate in that I have not had to prospect for clients in over a decade; and I literally mean fortunate in that a day does not go by that I do not thank the Lord for the many blessing he has bestowed on my family.  

y presence here is more or less an expression of my faith.   My God has blessed me with bounty and I am trying to allow others with lesser means (in regard to my clients) to avail themselves of the same skill-set that better heeled individuals are able to.  As long as I keep to my non-disclosure agreements and adhere to my security clearances I do not sense conflicts of interests. 

As to your specific question, while I understand it, it may not be applicable.  If you analyze what I write you might note a consistent pattern.  I suggest people limit their exposure to risk and insure they are being adequately compensated for the risk ensued.   Stated differently, if you have little in the way of assets, and therefore little to lose, then in many ways franchising may be more appropriate.  As a financial professional, I would strongly counsel against any type of franchising opportunity that put the bulk of substantial assets at risk.  Which is to say: I would not sign a personal guarantee, and I would only put at risk an appropriate percentage of total assets.  Risk in this sense means assets that may be seized to satisfy obligations related to the business.   Once again, I’ll reiterate, if you have little in the way of assets it is a very different game. 

If I managed to convey my intended message, you will find that to some extent the basis of your question has already been factored in, because the outcome you proffer has already been taken into account in the risk analysis.  I hope that makes sense. 

All the best,

 FuwaFuwaUsagi

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