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Franny answers franchisee questions

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

If your post is answered by Franny, it will be featured on the front page of this journal under the "Ask Franny" column.

In your post, please do not mention your franchisor's, vendor's or your own firm's name. The intent of this forum is not to give press to a brand name but rather to ask general questions that franchise owners within and outside one's brand might find of interest. (There are press release areas to sell what's great about a brand or other forums to tell tales of franchisee rip off.) Your question may be edited for clarity, brevity and frankly, some entertainment value.

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Bob Frankman's picture

¡Ay caramba Kona Bonah!

I just found this sales pitch for buying a Kona Bonah (uhm, Kona Ice) franchise. "You'd be amazed how many people are looking up shaved ice online. It's unbelievable," says the pitch man on why this man-in-the-van franchise makes sense.

Unbelievable indeed.

My spidey sense is tingling. This feels bad. Real bad.



What are the franchise

What are the franchise agreements

Franchise Questions

My name is Melene Vasquez I am looking into opening a El Pollo Regio. I am looking for a small business loan. Do you know if El Pollo Regio is an proved small Business?

We can lend you.

Contact me we can lend you money

Sharkeys Cuts for Kids

What is going on with the Sharkeys franchises in Calif? I was interested and decided to call local owners instead of the HQ, where I figured I would get the real answers. They have either shut down and/or are not happy. It seems to be the state with the most closures and unhappy franchisees. I was told by a few that they definitely would not do it again and the franchisor is of no help.

Google Scott and Linda

Google Scott and Linda sharkey, CT. I was looking into that franchaise until I read about the lawsuit filed against them.


Very interestesting...are you a franchisee. We own a location in British
Columbia, Canada.
Would love to chat with you if you're interested?
I see similarities...

Role of state CDC on SBA loan

Does anyone know what is the role of CDC of a particular state in relation to SBA lending? Do they get a cut or fee from all the SBA guaranteed loans issued in that state?

Potential client questions

Dear sir or madam,

I am creating an online engagement strategy for an up-and-coming franchise, and wanted to know a few questions about your program, in order to accurately rate it based on my clients concerns about hiring an online franchisee referral program:

Please answer yes, or no to the following questions, or add additional information that you might find germane for a client who is skeptical about utilizing a referral program based on a prior experience with poor leads.

Do you offer a Priority Listing Option?
Do you have Pre-Screened Candidates?
Do you have International leads?
Do you have listings of clients interested in a walk-in dessert franchise?
Do you offer a cost-per-lead rate AND a monthly flat fee rate?
Do you have a no-hassle refund for a bad lead? (Which I define as a bad phone number coupled with an e-mail that is unresponsive)
Can you apply month-to-month terms with no cancellation fee?
Do you create your own lead origination?
Is there any ability to increase exclusivity of leads by paying a premium, so that leads don't go to competitors in a particular industry, or if they do, they must pay a premium?
What was your clients conversion ratios for last year?(leads: franchise sale)
How many franchises their clients sold last year from their leads?

Re: Potential client questions

What is this post all about?

UPS STORE Trial Back In Play ??

I was wondering what happened the the article on the Courts decision that now allows the UPS Store Franchisee's to go to trial.Why was it REMOVED?? Just wondering..Janet Sparks do you know why it was removed??

Granville_Bean's picture


Clueless Guest asks "Why was it REMOVED??"

It's NOT removed.  Go look in, for example, Legal.  Front Page only has the most recent, current articles.

How to avoid arbitration. Let your spouse sue in court

This is a great idea:
Mr. Marks noted that arbitration clauses such as Snap-on's act as a barrier, preventing franchisees from obtaining a full and fair hearing. "When you don't have the same rights in arbitration as you do in court, you will be at a severe disadvantage. Your wife and your family will bear the loss," he said. "This novel case is attempting to eliminate the tyranny of arbitration and the way it is sometimes used against unsuspecting franchisees."

Can a child bring a case

Suppose both husband and wife signed the release documents and arbitration clause. Can their college going kid raise a case in the court because the family is financially harmed by the franchiser?

Granville_Bean's picture

try it and get back to us....

Yet another Guest asks: " Can their college going kid raise a case in the court ..."

Let us know how that works out for you. Yes it really is that simple, eh?

Can a child bring a case

Suppose both husband and wife signed the release documents and arbitration clause. Can their college going kid raise a case in the court because the family is financially harmed by the franchiser?

Granville_Bean's picture

so how'd that come out?

From Guest's own link:  "A similar lawsuit was filed in Texas by four wives on December 30, 2003 against Snap-on's Dallas branch." (Boldface added)

Today it's 2012. Not a new idea at all.

Does SBA Inspector General do anything?

SBA Inspector General has a web reporting site where one can log a problem. There is a situation where the SBA loan officer gave the inflated financial projections in writing to the borrower, so that the borrower can get the SBA guaranteed loan to buy a multi-million dollar franchise investment. This loan officer has a track record of making loans that failed for the same franchise system and the franchiser reacquired those bankrupt properties at a heavy discount and resold with handsome profits. Bank had no risk because the loan was guaranteed by SBA. The loan officer was later rewarded by the franchiser by giving her an executive position that was newly created.

These were reported with clear descriptions and proofs but SBA OIG seems to be ignoring them. This is tax payers money and it is much more than what OIG reports in monthly reports, which are in thousands. These loans were in Millions and someone needs to look at them because new loans are being issued for this franchise and failures are happening that do not get reported in FDD due to clever manipulation of records.

Differentiation between FF&E and CAPEX

Dear Sirs,

could you please send me the proper way to differentiation between FF&E and CAPEX in hotels business ?

Yasin AbuAwadh

Huntington Learning Center and Banco Popular SBA fraud

Did any of the Huntington Learning Centers franchisees file a lawsuit? All the available reports mention that SBA rebuked Banco Popular Bank for approving the SBA loans. What happens to the franchisees? They are the one, who took the blow.

Defaulted Huntington Centers

We have represented a few of these defaulted Huntington Centers in regards to their personal guarantees. It is an awful situation that happened, and the fact of the matter is with this economic downturn the learning centers all across the country are taking huge hits on revenues, in turn forcing touch decisions to keep the doors open. Feel free to message me with any questions. --- Distressed Business Advisor

Open class action suits against Huntington

I need help- I was told by an "insider" that there is a group of Huntington Franchisees that have recently filed against the Franchisor. I have been a franchisee for 6 years and no matter how much I follow the system- I still lose money. I have lost over 500,000 and finding out that they lied to us to get our money doesn't sit well here. I have had to be hospitalized twice over the stress and I have made the decision to get out. If I could at least be vindicated that would make this process a lot easier. Please help. Oh I forgot, I was also told that there is Congressional Investigation in the Franchisor practices. I just need to know who to contact to be a part of this. Thank you

Rocky Mountain Chocolate Factory

Dear Blue MauMau,

I am currently researching a story on Franchising in general and Rocky Mountain Chocolate Factory in detail. As we dont have such a huge franchise-culture in germany I found this wounderful homepage. We are currently developing a similar concept in germany. So I thought about getting Franchisees and more important - former franchisees on the telephone to get an impression what can go wrong with a chocolate franchise.

Is there any possibility to get a former Rocky Mountain Chocolate Franchisee "on the line"? Are there any "horror storys" like Cold Stone Creamery?

all the best from Germany

Find Exit strategy and limit of personal guarantee

It does not matter which franchise you consider. Always find out what is the exit plan for the franchisee and if there is personal guarantee. If there is no exit plan and you give personal guarantee, you will pay Royalty from your salary even if the franchise business is closed. You will need to declare personal bankruptcy (lose everything) to get out of that. Speaking from first hand experience and the franchise was Discovery Point.

Personal Guarantee " Outs "

Most of my clients come to me for the release of their personal guarantees. Bankruptcy is certainly not the only option. The government has put things in place such as the "OIC" Offer in Compromise to settle personal guarantees and any remaining business debt such as SBA loans. Feel free to email me with any questions.

Point of Sale Systems

Is it more advantageous to have a POS system that is all in one, such as a PC in a box using non propriety hardware such as HP, or is it better to have hardware that is made for POS like NCR, Fujitsu or Micron.  What are the pros and cons that other franchises have encountered in either scenario (for ongoing support, cost, adaptability to technology changes).

territory encroachment

I am sure that a neighboring franchise has encroached my territory and has reaped over 100k of my business. this was done with the approval of the national office. I would like to hear your opinion on how likely it is to get the non-encroachment policy in my contracted enforced>

Granville_Bean's picture

Are they or aren't they?

forced sez: "I am sure that a neighboring franchise has encroached my territory ..."

You have a defined geographic territory?  How are the borders defined? Are the new guys INSIDE your defined territory or not?  If they are inside, sounds like you'd have a case.  If they are merely nearby, it doesn't matter if they draw business from your territory, they're not INSIDE it. 

I have never heard of a FA that defines a geographic territory and then says that nobody else can open a store outside the territory that draws business from that territory.  It's only that no other store will open inside that territory.

Buying a business

Here is my situation. Stay at home mom looking to purchase a business. I have no prior business experience. My goal is to purchase one and expand to more units when possible. I am interested in resale service business. Can you point me to some names for direction? I live in San Diego. In terms of expandability, is franchising my best option? Thanks. Also appreciate referals of local brokers.

Granville_Bean's picture

talk about

Guest says:  "Stay at home mom looking to purchase a business. I have no prior business experience. My goal is to purchase one and expand to more units when possible. "

Talk about wanting to run before you can walk! No business experience and already talking about expansion.  Make sure you can run the first one, first.

My recommendation is that you

My recommendation is that you start your own business instead of buying an existing one unless that business is extreemly successful and you are extreemly wealthy.

Be careful about franchise

Unfortunately franchise system has become the modern day slavery. You pay to become the slave. You will sign all kinds of contracts and will not be able to get out without losing everything. You will not have much left for yourself after paying them. There are exceptions, but we have several friends that have suffered so much with franchises. Since you do not have prior business experience, franchiser will exploit you to the maximum. If you read about the Matco tools, learning centers, and Discovery Point as discussed in this forum, you will realize that franchise is no better than independent business and can be worse. Some franchises require small amount of initial funding and others need a huge sum of money. They will be nice before you sign the contract and give you a rosy picture verbally and nothing in writing. After you get in, you will find that franchises are not there to help. Actually they benefit if you fail because they buy your business back at fraction of the original price that they sold it to you. They will let you sign that they will be first in-line to buy it back.

If the business is profitable and it has a proven business model of a franchise, why is it for sale?

Jan-Pro Franchise

Is Jan-Pro Janitorial a reputable company in which to purchase a franchise?

Is selling dry cleaning services considered being a franchisee?

I looked at several dry cleaning franchises that are route oriented.  In reading the franchise agreement the franchisor owns the account base. I would have to go out and prospect to get the route customers(out of my own pocket.)  After getting the business I would have to service the customer by picking-up and delivering their orders.  After delivery, I would have to collect for services rendered, pay for vehicle maintenance, and pay the dry cleaner. Meanwhile the franchisor collects a royalty on every dry cleaning transaction regardless of when or if I get paid.  Also, if the dry cleaner messes up, and I have to make good for the customer, the franchisor still gets their cut.

In my years of business, I have have never heard of anything so perverse or unethical to where I have to go out and establish my own following, but the following is actually owned by the franchisor.

Why does the franchisor have that in the agreement, and is this negotiable to take out.

Thank you,
Phil Weisberger

Franchisers are not good anymore

The Franchise concept was good when it started. It made sense to come up with a business idea or product and share the profit with others, who put the effort. But now franchise world is full of businesses that do not have anything of their own except for the contract. As you have pointed out, there is no responsibility or expense for the franchiser, they do not deliver anything, there is no product or process of their own. but they want a cut when you will be doing all the work. Save yourself, do not sign contract. Easy to get in, nearly impossible to get out.

Matco Tools and TD bank helped to issue bad SBA loans

This is very similar to other SBA loans where franchiser provided inflated projections and banks took it knowing that they are not taking any risks. SBA covers the losses with taxpayers' money.

"two Matco franchisees filed a class action lawsuit against Matco Tools and TD Bank in the United States District Court for the District of New Jersey. The plaintiffs are a father and son duo who each owned a Matco Tools franchise. The plaintiffs allege that Matco Tools and TD Bank “in a loan fraud scheme to encourage unsophisticated borrowers to enter into risky business loans to buy Matco Tools franchises.” According to the plaintiffs, the “scheme enabled Matco to sell more franchises and TD Bank to make risky loans without concern” because the “bank knew if the loans failed, the loans would ultimately be repaid by the United States taxpayers through the SBA guaranteed loan program.”

Discovery Point Franchising Failures do not get reported

Discovery Point franchising had several centers go bankrupt since 2007, but the SBA report or FDD does not list any failures. Upon inquiry, the franchise corporate replied that corporate picked those businesses up right before their owners went bankrupt. Is this not bending the rules? New franchisees will not be able to judge the system correctly if this process goes on. Do all franchises follow this type of manipulation?

Granville_Bean's picture

What the heck is a Discovery Point

Guest gripes that: "Discovery Point franchising had several centers go bankrupt since 2007, but the SBA report or FDD does not list any failures. Upon inquiry, the franchise corporate replied that corporate picked those businesses up right before their owners went bankrupt."

If someone, anyone, paid off the SBA loan then how would is show up on an SBA report? The loan was paid. SBA would report unpaid (charged off) loans, not that an owner lost money on the business.

If someone, anyone took over a store/center, it wouldn't be a closed location. Someone who is specifically a franchise attorney (I'm an attorney who owns franchises, not a franchise attorney) can answer if it is some kind of requirement to show units the franchisor has taken over. Otherwise I'm not seeing how it is wrong for a business (in this case the franchisor) to act in its own best interests.

What Guests posts is confusing.  WHAT ENTITY went backrupt, the business or the owner?

Discovery Point is a childcare franchise

The Franchise Disclosure Document (FDD) needs to disclose the centers that failed so that future franchisees can evaluate the business model. This is the intention of FTC. Franchisor hiding the failed centers by a ownership name change appears to be fraudulent. Discovery Point sells the childcare building and equipment package (nearly $2.8M), the business comes for free. The business as well as the owner went bankrupt and Discovery point bought the real estate from the bankruptcy court (for $1M) and then resold again with SBA guarantee. FDD showed all is going well. It is surprising to find that SBA follows the FDD and not the unpaid loan records.

Closed or Terminated Franchises

Must be listed in Item 20 of the FDD whether or not the franchiser takes them over.

Neither Closed nor Terminated

DP corporate said, the franchise business was handed over and it was done for free. So, the childcare center was not closed and the franchise agreement was not terminated. I am sure the previous owner did not have much clue what was going on - this franchise is running simply on these legal manipulations.

Closed, Transferred and Terminated...

All of these must be listed in Item 20 of the FDD. This is not optional end of story

Re: Closed, Transferred and Terminated

Tell the state regulators about the wrong information in the FDD. They'll inform the franchisor that the zor must fill in 3 years of closed, transferred and terminated stores in Item 20. If the franchisor refuses to comply and the state somehow knows that they are cheating, the state may deregister the franchise brand so that they cannot sell new franchises in the state.

As for you, well, sad to hear that you got bum information. Maybe you'll be more careful next time in your due diligence in trusting the franchise disclosure document too much.

No state regulator in GA, SC for FDD

Interestingly there are no state regulators in Georgia, South Carolina, etc. If it is approved by Federal Trade Commission, it is good for the state. FTC does not take individual complaints. So, franchisers have free rein in these states. They can write anything in FDD and get away with it.

Granville_Bean's picture

Not closed or terminated but transferred?

First Guest apparently wants to see the location listed as Closed.  Or maybe Terminated would satisfy him.  What if it's listed as Transferred?

BTW, $2.8 million for a day care?  That's a lot of money for building & equipment; so what if the "business is free".  Why can't someone buy or lease an existing building and obtain their own equipment without involving thses folks, and still have their business "free". What is so special (or patented) about their buildings that a local architect couldn't reverse engineer one with the same function????

Building and Equipment at Cost - not really

You have correctly pointed out that unless it is marked as closed or terminated, it does not raise a flag. Transferred means someone else bought it and there is no problem in the system. Do not underestimate the marketing tricks that are in place. Most of the franchisees are professionals with College Degrees. They are cautious and saved for years from their salary to have their own business some day. They had been convinced to put in everything they had - so there is something.

It is a lot of money for a day care and the profit projections were given as $20K+/month return on that investment. Franchisers are childless husband and wife, and they behaved as Mom and Pop, before the purchase, to the franchisees, who are mostly young families with small children. That nice behavior then quickly changed when the franchisees found how they were wronged. The building and equipment were told to be provided at the true cost. It was specifically mentioned (verbally, but to several franchisees) that Discovery Point did not make any profit from those real estate and equipment transactions. It was twisting the truth, because these transactions were not provided by Discovery Point (DP), but by the owners of Discovery Point as different corporations - Westair, Dialex, etc. It was also presented as- a particular center was at a great location and unless the franchisee decided in a week or two, it would be gone to the next one waiting in line. DP makes about $700K+ profit from the sale of each new center.

The SBA loan officer was also a part of this. She supported the financial projections given by DP and claimed to be involved with DP financing for a long time. She also mentioned, normally a franchisee refinanced the center in 3 years with cash out to get the initial investment of $300K back - according to her everyone was doing it. Later this SBA loan officer was hired by DP for about a year and most likely compensated for her support for DP.

There have been about 6 bankruptcies recently and from the FDD you will not be able to figure that out. Other centers are struggling and normally this is how it works - husband works a full time job to pay the bills and wife works at the DP center without salary (many times 12 hour days) to keep the DP center running- their own children are neglected because there is no time - franchisees work in the weekends to fix real estate and equipment- there is no money to pay repairmen. As you can guess, most franchisees had put in everything they had in this venture, signed all kinds of obligations and release forms, and have no way of getting out. Many franchisees have drawn from their retirement accounts and are really trapped/ruined for life. DP continues to claim that there is no problem with the system. Interestingly, DP owners have no child of their own but have become childcare franchisers. There is no patent or anything special about the business except that the royalty is fixed at about $5000/month - whether you have any income or not. So, Discovery Point keeps on earning that royalty till the center fails. Once it fails, DP buys the center back from bankruptcy court (TN center was bought back for $1M) and sells that again. DP also arranges $200K in operating money - lent at a floor of 10% interest from that $700K+ profit to the franchisee so that franchisee can keep the center up for some time and does not raise a SBA red flag for a quick failure.

Granville_Bean's picture

Nothing special

Guest tells us: "There is no patent or anything special about the business "

I should also have said trademark, so my bad on that.  However even if someone has a trademark, the Q is "how valuable is it".  Like customers will pay more, or select first, a can of soda that says Coca-Cola on it compared to one nearby that says Guest Cola. If there is nothing special about a Discovery Point that brings in more customers or motivates them to pay more, why would anyone bother to buy an expensive building from them AND pay them $5,000 per month?

For the $5,000/mo. to make economic sense, a DP would need to make more than $5,000/mo.greater profit than the same daycare but not called a DP,  In order to make it profitable to pay the fee and then have a net benefit from doing so.  I can hardly imagine such a scenario. That is a major monthly overhead FOR WHAT??? In many markets you could lease space for a daycare for less per month than the DP fee. 

I seldom if ever see someone put up a new building to launch a startup daycare business. Maybe in some other market that I've never seen.  The biggest daycare centers that I personally have seen have been in former school buildings, and the next biggest in 2nd or 3rd tier commercial space.  It is very hard for me to understand the economic justification for putting up a new $2.8 million center AND pay $5,000/mo. But hey, I'm just a lawyer with an MBA.

Sell My Franchise

Do have or know of a vehicle for selling my franchise. I own a Coverall Cleaning (Commercial) franchise free and clear. I would like to sell it. Only asking $20,000 which includes ownership transfer. It covers the Chicagoland area.

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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.