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Ask FrannyThis forum was created so that readers and members of Blue MauMau can post questions to Franny about issues of interest to small business and franchise owners. Franny sometimes invites world-class subject matter experts to answer tough questions

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FranSynergy's picture

Accounting 4 Franchisees!


I'll respond to your question via Bluemaumau e-Mail, due to the nature of the question,  and my answer. 

FranTastic Franchising,

michael webster's picture

Mr. Tactics Response

I think that I have said all that can be usefully said in a public forum when discussing Mr. Tactics advice on a previous thread.

In my opinion, that poster had some very interesting thoughts. And no, I don't know who the poster is.

Perhaps you can try to contact him/her directly?


Michael Webster PhD LLB
Franchise News

Les Stewart's picture

This is an excellent valuation question

But unfortunately, I am unable to do this calculation.

In my experience, it is impossible to quantify for proposed franchise investment purposes (discounted cash flow, total gross margin, etc.), cash spent in Year 1 when in Years 2 to 10, that margin can become a negative value via franchisor opportunism.

In other words, I lack the ability to gauge your business risk of this present or future franchisor of appropriating your personal and business capital without compensating you for doing so. Franchisor overreaching is the material risk franchisees' face and it is wholly uncontrollable.

Killer due diligence is only an imperfect historical tool at best. It does nothing to predict what will happen nor act as a defence if it were to materialize.

But this is just me. I'm keen to see the mathematics from others that hold a contrary opinion, though. Gentlemen?

Les Stewart MBA
Understanding Franchising

Strategic Self-Term?

What you're proposing has been done before, the best strategy will depend on a number of factors, let me ask you a few questions.  Answer them the best you can without giving away your identity, your business or your franchisor.  If you need to provide identifying info and do not wish to make it public please email via BMM mail. 

After I've had a chance to review your answers, I'll provide you with a better and more strategic response.

  1. What type of franchise: (i.e. Fast Food, Automotive, Lodging, etc...)?
  2. Who is your target market?
  3. Is the size of your target market growing, declining, stable?
  4. How long have you owned the franchise?
  5. When is the current term up?
  6. What are the terms of renewal?
  7. What led you to get into this type of business?
  8. Why are you selling the business?
  9. How would you describe the current state of the business?
  10. What is approximate annual sales volume?
  11. What is the average dollar sale?
  12. How many FT/PT Employees?
  13. How long has the longest term employee been with you?
  14. General location (i.e. Northern, Central, Southern)?
  15. Do you own the Real Estate?
    1. If so Lot size?
      1. Bldg Size?
      2. Bldg Age?
    2. If not, time remaining on lease?
    3. Approximate monthly lease?
    4. Triple Net?
  16. Corporate Structure (SP, Prtnshp, LLC, Corp)?
  17. Have you retained a broker?
  18. Is your financial statement up to date?
  19. Estimated value of inventory?
  20. Would you consider staying on as an employe for 12 months?
  21. Do you intend to remain in the same industry?

FranTastic Franchising,


What does your franchise agreement say?

Your question is impossible to answer absent facts. 

The Truth Shall Set You Free!


Dear Sad Sub!

Dear Sad-Sub:

First, Congratulations on your successes!  It is nice to hear from a successful franchisee looking to expand by way of multi-units within the same brand.

I'm sorry to hear that you're experiencing what sounds to me like a case of "poor communications" with your Subway DA.  It's always frustrating when you are 'Fired-Up" and excited, and a key 'center of influence' fails to share in your excitement and assist you in executing your business plans. 

There are many pros and cons to multi-unit franchise ownership, and these pros and cons are perceived differently from the view point of franchisee and franchisor.  Perhaps you are 'ready' for expansion and perhaps you are not.  Either, way your DA should be providing you with 'good' communication and working with you to develop a plan for growth.

Within franchising the latest reports indicate that 82% of all franchisees operate single units, controlling 51% of the units.  Approximately 30% of Subway Franchisees own multi-units, so this would suggest that Subway has a willingness to develop multi-unit franchisees.

When responding to these posts, one must at times try and 'read-between' the lines and you wrote that your DA would not provide you with a 'Legitimate' reason.  I'm not suggesting this is the case, but I caution you to always remember that because you do not agree with the advice/opinion/decission of your franchisor that does not mean that it is not legitimate, valid, or well intended.

I do not believe that retaining the services of an Attorney is the appropriate action.  Unless you have something in your Agreement that states that they (subway) will sell you another location at X time, under X conditions etc....

I do believe that if you have not already done so, you should prepare a business plan which validates the logic of your desired expansion, and demonstrates how you'll handle the challenges of Multi-Unit ownership.  You should then provide this business plan to your DA, and perhaps copy it to a few of your key franchisor contacts.

Additionally, you may also contact NAASF.  You do not have to be an NAASF member, they represent ALL Subway Franchisees.  You can contact NAASF CEO Jim Hansen by email at  If you are a member, you might also post your question on the bulletin board at naasf, to see if other franchisees have experienced similiar situations with this same DA.

I hope you find some direction in these suggestions, and I wish you the best of luck in your growth, while cautioning you not to try to grow too fast.


Don Sniegowski's picture

Who You Gonna Call?

Tax attorney Bruce Schaeffer from New York City does franchise valuations not only during daylight hours but I'm told can also do so in his sleep with both hands tied. OK. Maybe not in his sleep and without MS Excel.

You can read about him by going here.

He is quite well known in the industry for valuations - on both small and large acquisitions. He writes on our site from time to time. His blog is here.

Another possibility

While Franny's advice is excellent, there may be another factor at ply in your DA's agenda. The DA may have a preference to sell that unit to a person ho will also purchase a territory and commit to developing more units. The DA figures that in selling one she can get X more developed near it, but that will not happen if it is sold to you.

If you believe that you are ready to develop additional units, you might coonsider asking about a territory to go along wihth the acquisition and negotiate for the least possible units at the lowest cost.

Good luck!

re: spite.

Thanks all for your replies - I appreciate your professional opinions.

I would say that your assertion of doing something 'out of spite is a waste of energy' is erroneous. With respect to personal finance it is indeed a waste of energy. With respect to self-satisfaction, i could think of nothing more satisfying than taking my particular story to the local media and convincing them that covering a local story (the franchisor is local to the state where i reside) which parallels the plight of many franchisees stuck in similar/identical encroachment situations with national (footprint) franchisors is indeed newsworthy and will sell newspapers.

Does it help my personal situation to do so -- of course not. does it help my sanity and would help me sleep at night if i were able to publicly call them out and damage their reputation - you bet it would.


"They won't do anything to change what has been decided. "

BINGO. I doubt you know my franchisor (i doubt you've ever even heard of them, they have a very small franchising footprint) but nonetheless you are able to look into their soul. kudos.

i am definitely looking to cut my losses and sell. Even if i thought i could implement a marketing plan that could restore me to profitability (no short term solution here), i no longer wish to associate with franchisor. Knowing that i'm helping them make money today makes me physically ill. I was tired and burning out prior to the encroaching store opening up but i was making PROGRESS. i could see the light at the end of the tunnel (the 'light' being the transition of the store from a job to an asset - i never wanted to run a restaurant for a living). Now, i dread even being in the store (i'm in the classic death spiral where last march i had to pull myself out of the operation to get a job to infuse more working capital in the store. when the cats away the mice start playing and stealing at a furious pace, etc... you get the picture).

What should i do then?

I could increase my income if I could just add a few items that my customers want, do some catering and do some carinvals & fairs. It is just not fair, I have a good business but I could do more they are holding me back. i built a good business.

Thank you!

I will look into it!

Subway and DA

I am a current multi unit owner in the process of leaving the "Subway Family" AKA the Food Mafia Franchise. I think if anyone took a good, hard look at teh direction Fred is taking things, esp with the new franchisee agreement , I cant see why someone would remain let alone expand. As to teh local DA, it is quite true that the can make your life miserable to quiet you, move you on or shut you down. I had some good years with Subway...I think I will have more without them.

franchise agreement

It is not in the original franchise agreement. Additionally, I am aware of other franchisors trying to do this ( Dominos and others) and the franchisee won case. Ther seems to be a clear conflict of interest in the franchisor being majority owner in other company. No limit on what could be charged for technical support ect.

More To The Saga...


Well, there is more to the story but I am fearful that if I "say" too much, I will be singled out and yes, there is a history of this happening with other franchisees. Most don't want to loose their shirts and quietly go away.

I did submit a business plan, a 5yr projection, every financial statement that you can imagine, have had a CPA and my attorney look over everything, but she told me that she will not approve me. I said legitimate reason, but she has given me no reason at all. I do know why, however, and it is all personal. She likes to engineer each deal from inception to close, and this other owner and myself have become great friends over the years. She doesn't like that we "talked" about this last year...heaven forbid! I didn't know that we were not allowed to talk or network with other owners! Believe me, we did not do anything out of line! When the other owner was ready to sell, she told the DA but the DA was irritated that she did not know BEFORE we talked!!! Vicious circle, huh? She even threatened the other owner with not ever helping her in the future for making her (the DA) look like a fool. No witnesses here, but she had screamed at me on the phone a week earlier asking me who I "thought I was" by going behind her back. We were stunned! I started calling others that I have met this year, in a very humble manner, and asked if they had any insight. They all told me horror stories but that most just "go away" because it won't do any good to report her. Her territory is making money. That's all DAI needs to see. Some had tried and none got anywhere, just became a target on her "hit list." You see,the field reps are HER domain and they will FIND a reason to mark you out of compliance if their own jobs are at stake...hmmm...something's wrong here in my opinion. I also know that she is manipulative. She has taken pieces of sentences, words, out of a conversation and covered her own butt by twisting them out of context by following up in a letter to recap. I do not want to talk to her alone anymore and that is why I called an attorney.

I am hesitant, for these reasons, to post on NAASF. I don't feel that I can trust anyone related to the organization right now. Other problem is that she too is a franchisee since Subway allows her to own stores. THAT'S another story about the unfair conflicts of interest that have surfaced.

I do not believe we are going too fast. It's been over a year. I'm an intelligent individual with a very strong support system and wonderful employees.

Also, to the next person who replied, yes, I meet all the steps for a transfer EXCEPT the last...having the DA give approval. Also, I did call and ask for an appointment to discuss and give an outline of steps she feels are necessary to move forward, but as of yet, that appt. has not been arranged. I am, however, completely untrusting and do not want to have contact with her without my own witness with me.

I will print and keep your advice for the times I feel that I am going to crumble. It has truly been devistating.

Thanks much,

RichardSolomon's picture


If your franchisor won't allow such incremental business operations to be engaged in by its franchisees, then that business isn't competitive with yours and you engagement in it under another name probably is not prohibited by your in term covenant not to compete. What is competitive is only what does the same thing you do/are permitted to do. Illustratively, if you cater, you aren't competing with folks who aren't permitted to cater.

Obviously this depends upon the specific wording of your franchise agreement, which you ought to have a damn smart lawyer look at with this question in mind.  

Richard Solomon

Poor attitude will yield a poor result...

You are playing the game to lose. Why did you ask for advice just to lampoon the heart of it? Go ahead and disregard what people are suggesting you do and go read the stupid Item 20 rants on this site and follow that guy's advice and see how things turn out for you.

Good luck, you're going to need it since you may be your own worst enemy!


RichardSolomon's picture


If your franchisor really is a small operator, there might be an opportunity that wouldn't be there with a large franchisor.

I know you hate paying them money, but with the right approach, you might be able to extricate yourself from the agreement with a combination stick and carrot.

You go in aggressively, appearing to be ready to make a fight of it, but you are willing to pay some "feel good" money to swap releases.

Pick a lawyer with a dorsal fin and seven rows of teeth. 

Richard Solomon

Spite is Okay! But can you afford it?

A little spite is not a bad thing. If you do get a little publicity about this ZOR who encroaches and destroys in the interests of his own profits, you may warn others.

The "warning" and the "saving" of others from what you have suffered is an act of "citizenship."
But, be careful, I'm sure your contract contains language wherein they might sue you "for damaging their brand name" and if you sell and transfer your franchise for nothing, or very little, they will require you to sign a confidentiality agreement and a general release to do so.

The courts uphold these confidentiality agreements and they uphold encroachment that permits the franchisors to grow their visibility and profits on the backs of first-generation investors. The person who gets your store for very low investment has a chance of ROI and is putting little at risk and will continue to feed the franchisor royalties, etc... (I have heard that people even pick up these discounted stores at almost 100% discounts for tax reasons and to wash money )---but Richard Solomon could tell you more about that. But, it looks like your franchisee competetor has been designated to get your restaurant cheap and he will be able to get some ROI on the two units he will then own. But, maybe you can find another buyer for your tangible assets and at least frustrate their intentions to squeeze you into selling to the encroacher franchisee.

Remember! Franchisors can keep selling these pigs in a poke and encroaching, etc.. because they CAN SILENCE YOU with terms of the contract that bears your signature. You were a source of venture capital to increase their footprint in the economy and to maximize their profits and you are silenced in failure and another will follow in your footprints.

Richard Solomon gives you the bolttom line in truth! They have "had" you and there is no recourse. You have enough trouble and you can't afford an attorney.

I'm sorry for your pain and constant stress and aggravation and understand where you are coming from. Remember that your government is licensing these franchisors to do what they did to you. Look at the big picture and write to your Congress person and Senator about the failure of the FTC to regulate franchising in the interests of the franchisees who are now, under regulation, just an expendable and convenient source of venture capital and labor for those who will have you prove their "proven" plans and generate profits for them in success and failure or breakeven status.

You have been a "log on the fire" that feeds the economy in terms of jobs and taxes as well as profits for your franchisor. It is only YOU who have failed and your investment will go on to feed the economy. You join millions of others who are the silenced artificial lambs. Be sure to read Bob Baber's suicide note under search Quiznos on Blue Mau Mau.

Good Luck!

Does the software work?

Does it do the job? What are the alternatives? 

The Truth Shall Set You Free!


You should...

1. Carefully read your contract.
2. Find out if there is a policy from Subway (Doctor's Associates) that outlines the requirements for franchisees wishing to expand.
3. Schedule a face-to-face with your DA on neutral ground and ask her what it would take for you to expand.
4. Talk with your attorney after you've done the above and collected information for him to review.

who says i'm disregarding

who says i'm disregarding anything other than the fact i like to dream about exacting revenge against those that perpetrated acts against me that have put me in this situation? i'm not dimissing anyone's opinion or advice - i just shared my opinion on one individual's opinion. no disrespect was intended nor 'lampooning' conveyed. i'm expressing my frustration with my situation.

i am playing the game to get out with the least damage to my personal financial situation at this point.

you can most definitely work to better your personal situation AND try to bring justice to the situation (on those whose actions created the situation) -- these two activities are not mutually exclusive. I didn't sit around and put my head in the sand and tap my shoes three times and say "there's no place like CFCBE" three times and hoped my situation would get better. I recognized the fact that my negative cash flow was going to close the store so i acted and found a job in my old career that allows me to cover my operating income losses as well as accumulate a reserve of cash to be used for additional marketing activities. My sales in August from July were flat whereas in past years i typically saw a slide down in net sales towards the end of summer. I am taking action whilst i position the store for sale...but thanks for stereotyping me as some whining 'entrepeneur' who can't help himself.

Thanks for this advice.

Thanks for this advice. I'll definitely bring up this strategy during some discussions with some legal sources local to the area (and that understand my state's franchise laws).

Hyperbole aside...

If you take the advice of this Ranting Item 20 Conspiracy Theorist Failed UPS Store franchisee you are an idiot.

You've received some actionable advice to follow from Solomon, Coen and Steinberg. You should take those ideas and begin working with an attorney that is well versed in franchise matters.

thanks for your response.

thanks for your response. Great feedback. Thanks again.

software ect

Pweforms minimal functions. Point is it could be best software in the world which isnt the issue. Issue is weather or not franchisor can or cant compell a franchisee to purchase pos hardware exclusively by and thru them w/o offering alternatives and require a franchisee to purchase technical support as described in previous post.

Hey do what you want and write what you want...

I simply read what you wrote and responded to it. I am not a mind reader. Good luck!

whoops. meant to say

whoops. meant to say "there's no place like FCFBE", not "there's no place like CFCBE". my mistake.

Who said i was taking the

Who said i was taking the advice of some guy ranting about something else on another thread? what does that have to do whatsoever with what i'm raised as a posting in this forum?

quit trying to put words into my mouth. Item 20 wasn't even part of this conversation until you interjected with it. Please try to stay on topic.

Generally a franchisor can specify a POS system

And they can even profit from it.

What your franchise agreement says will determine if they can with you and if it is not specific on the subject of POS it is likely that there is broad language about system standards, reporting and operating requirements that the franchisor can alter, modify or update as they reasonably see fit.

I give up...

Never mind, forget I said a thing.

Good luck.


Can you imagine McDonalds with all different kinds of equipment when everyone is supposed to be the same?

michael webster's picture

Pulse Litigation and POS

I think that the result of the Pulse Litigation with Dominos is a counter example to your overbroad claim. 

Michael Webster PhD LLB

Franchise News


done - in my mind you're already gone.

Good Luck to yourself as well in whatever it is that you do.

Not enough information re: POS question

It is impossible to answer with any degree of certainty to the original poster POS requirement question.

Paul Steinberg's picture

Mandatory sourcing

Guest writes: Can you imagine McDonalds with all different kinds of equipment when everyone is supposed to be the same?

Sure. The issue is the rationale for mandating a specific product or vendor versus mandating a specific standard or outcome.

For example, if I mandate that you communicate with me only electronically by MSWord attachments to an email: you may use a Dell computer and Verizon as your ISP while the franchisee in the next town uses a Toshiba computer and AOL.

This is a fact-specific inquiry, and a franchisor mandate to purchase from a specific vendor is not ipso facto overreaching behavior.

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

Mandatory sourcing makes sense in a franchise

where everyone has a common need to be connected and to share information in an orderly manner.

If McDonald's said: Go out and buy a fryer for your French fries, that obviously isn't going to work because not all fryers work the same way . . . they won't produce the same great tasting product time after time in location after location, and since it's important in a franchise for every franchisee to have the same cookie cutter -- so that the product looks the same, tastes the same, smells the same, uses the same efficiencies in materials or ingredients, etc., it makes good sense for McDonald's to specificy which fryer to buy.

Same for the POS system or communicating among franchisees and with the franchisor. Not all operating systems are alike. Some will require specific modifications. Sure, a system may run just as well on a Dell as it will a Mac, but maybe not -- two different operating systems and the software may not be compatible. So the guy who's out there using the Mac, while the franchisor and most franchisees are operating off a Dell, is out of whack. He won't understand what's going on. Can't communicate with him -- at least not easily. And until the franchisor provides a system that also works with the Mac the franchisee needs to get a Dell. Nothing wrong with that.

You may mandate that I communicate with you only electronically by MSWord attachments to an email and granted, you don't care if I use Dell or a Mac (so long as the Mac can use MSWord). But you and I are not in the same business. I don't have a common purpose with you whereas I do with my franchisor.

And, too, if you tell me that you've spec'd out the equipment I should use, you've tested it, you've used it, you know it's economical and it will stand the test of time AND you've arranged for me to save money when I buy it (which is one of the reasons I invested in the franchise, the buyer power) I'm going to buy it. And of course I'd expect that YOU, the franchisor, are getting a kickback and so long as you disclose it, and I know what it is, I'm not going to object to that. Would be nice, however, if you passed along the kickback to me, or contributed some or all of it to my advertising fund!


I reviewed the Dominoes claim to some degree. It seems the franchisees rights were violated. As to the POS requirement, the original FA did not require one. Additionally, tthe new one does, however, there are no specifications noted. Again, I can understand the software created by Franchisor being required, but to not give standards on like equipment for a printer ect and then requiring franchisee to purchase only from them ( not propietary equip, rather equip avail in market) and then mandating we franchisees pay a $100.00 a month technical support fee regardless of our usage or not seems like a monopoly standard. I have owned/operated well known franchisee stores and none have ever required I pay for technical support. If the software or hardware goes down, I have a host of options. This franchisor I am referring to in the post does not allow for options. And again, the franchisor has vested interest in the company we are required to use for technical support.

Paul Steinberg's picture

No disagreement

For the most part, I agree. My point was that it is a fact-specific inquiry. And I wasn't comparing PC with Mac, but deliberately chose interchangeable (PC) platforms to illustrate that point.

As to volume purchasing, most systems are not large enough to get a price break.When I owned a franchise, the system was large enough and ultimately the zor set up a purchasing co-op which has been phenomenally successful. But there are a lot of kickbacks going on in the franchise industry, and the costs are incorporated in a higher vendor price. Apart from the fact that such kickbacks are really an increase in the stated franchhise fee and/or royalty, such practices are not conducive to good zee-zor relations.

Vendor monies paid to the zee/zor are a bit more complex than you make out, and I would note that you appear to conflate kickbacks with monies more accurately classified as "marketing" rebates. The latter are quite common among reputable companies (such as Coca-Cola) and are given for the specific purpose of marketing the vendor's product; as such, to simply pocket the money is improper.

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

Have you asked your franchisor these questions?

What did they say? What about your FAC and or Franchisee Association?

The Truth Shall Set You Free!


I used kickbacks because

I also wanted to include the morons who post who woul;d be the first to say that it's wrong for a franchisor to accept this money.

It's true that many of these "kickbacks" are specified for marketing purposes and many are not. Some franchisors disclose that part of their profit comes from the payments they receive as a result of franchisees buying certain products or utilizing certain vendors.

The franchisee may not like that the franchisor is receiving this money . . . and if the franchisee can indeed buy the same product or service for less money -- and it's an apples to apples comparison -- then the franchisee has a good argument and the franchisor should do a better job of sourcing products and services and getting them priced so that the franchisee benefits -- and maybe benefits most.

One of the great advantages of franchising is the buying power . . . and I agree that it takes time to get to the point where you have any buying power in a franchise.

pos ect

Neither exist. Small franchise..under 50 stores currently.

Your franchisor certainly exists!

Again what do they say? 

And you could call fifty of your franchisee buddies.

The Truth Shall Set You Free!


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About Franny

Franny's picture

Public Profile

Franny is a columnist for Blue MauMau who answers questions about running and owning a franchised business establishment. Those who have questions can post them under the Ask Franny forum. Readers may comment on the questions there. If the post is answered by Franny, it will be featured on the frontpage of Blue MauMau under the "Ask Franny" column. Franny sometimes invites Subject Matter Experts to answer. Please do not mention your franchisor, vendor or your own firm's name in your question.