Due Diligence

The subject of exercising proper due diligence, that is to say to thoroughly research a franchise system before buying one, is being brought up on almost every legal article. It is such an important and long-standing issue that it warrants its own forum area so that the topic can be properly explored.

Below is a discussion on the need of due diligence, resources for it, how to do it and its limitations.

re: here's a hint

We will have to repent in this generation not merely for the hateful words and actions of the bad people but for the appalling silence of the good people.
-- Martin Luther King, Jr

Posted by Boudica on February 13th, 2009


And I quote myself thusly:

"If you can't figure out how to properly incentive a man to act like a man you are already beyond help."

I rest my case.


Undeniable Truth of Life No. 24 via Rush Limbaugh: Feminism was established so as to allow unattractive women easier access to the mainstream of society

on February 12th, 2009

re: How to alienate the entire female readership of BMM: STEP 1

Ms. Boudica,

Generalities regarding people are usually wrong, so if you would, please look past the comment that offended you.

Frankly, it's too bad that many folks here feel the need to attend in Mardi Gras attire. If entered in the 'real', comments would be more thoughtful as well as more thought-filled. I wonder if any of our Zoros or Zorettes have the stuff to be seen at the cantina as they are.

Lots of good work has been done at BMM, so keep it goin. AND ...



Nick Bibby is an international franchise consultant and a program developer dedicated to excellence in entrepreneurship. 

Posted by Nick Bibby on February 12th, 2009

Tequila in the cantina

I'd love to remove my own "mask of zorro" and slam some franchise tequila with you.
Same as I'd love to be able to discuss my own "franchising woes" publicly with clear reference to fact.
But the truth is that some FA's prevent zees from discussing absolutely anything with anyone that the zor doesnt approve of on pain of termination.

I don't think we can ever have "good franchising" while one party is gagged. The things that have happened in my franchise are unusual(if the reports on BMM can be taken as any kind of reference for normal) and one day I hope to be able to post under my real name a discussion that does not have to be so cryptic and lacking in fact. It is extremely frustrating to say the least to want to illustrate an argument with example and back it with logic when to do so could result in my immediate termination.

Until australian law has some kind of freedom of speech protection I don't see how one can perform that part of due diligence that involves talking with other franchisees with any degree of thoroughness.

One only needs to read the Australian senate inquiry into franchising report and the legal threats made by by one franchisor to his franchisee to see how real a problem this is.

It would be interesting to see if Australian posters on this site have a higher propenisty to anonymity than their American cousins.

Posted by Boudica on February 13th, 2009

Self Help

Boudica writes: "So the answer to my franchising woes as a female franchisee is to "incentive a man" to do it for me. Brilliant. sounds way cheaper than a lawyer. Don't know why I didn't think of it myself- must be because I am a woman beyond help."

I don't read Fuwa as suggesting anything like this.  

I don't quite understand your franchising woes, even though I have read your posts.

Fuwa has a harsh, but fair view about contracting:

1. Don't promise, if you cannot deliver.  

2. Don't whine when you cannot deliver.  

3. Don't pretend to promise. 

Fuwa also wouldn't enter into a business without fully committing to 1-3.  Which is why he sounds harsh to those who have had businesses which fail.  (I still don't understand what 1-3 is gender based or biased.)

Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"

Posted by michael webster on February 12th, 2009

Michael: There is not gender


There is not gender based component - I should have written "as an aside" to make it clear, although it was a separate paragraph.

The point, as obscure as it may seem to be, is I have been involved in business men's circles since I was knee high to a boll weevil and I have noted the change in tone over the decades. At one time a community business meeting was moderately profane with men cussing about the dirty sob who ripped him off for about 2 seconds, till someone reminded him it was a dirty thing that was done to him, but it was his own darn fault. Now decades later the conversation goes on like the bloody Oprah show with so called men who need healing, space, time away, coming to terms…and they wonder why the do not have two nickels to rub together. If the worked at 7-11 for half the time they spent female dogging it up they might have something to roll into a new venture, wiser for the experience.

So it was a social commentary. But it is pretty hard to take, seeing so called men carrying on like they are on the Sally Jesse Raphael show. This is suppose to be a business forum correct - not the healing network with Richard Simmons.

That was the point. But watching what’s her name go off was just too much fun to resist with the Limbaugh comment. She made it so easy - LOL!!! I can just see her dusting up a storm saying darn that FuwaFuwaUsagi, or baking really fast or whatever she does when a guy ticks her off- oops did it again didn't I.


on February 12th, 2009


Fuwa writes: "Now decades later the conversation goes on like the bloody Oprah show with so called men who need healing, space, time away, coming to terms…and they wonder why the do not have two nickels to rub together"

Now that is funny! 

Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"

Posted by michael webster on February 13th, 2009

Proper Skepticism

Fuwa writes: "In every business dealing, assume the man across from you is out to get whatever he can, by whatever means he can - period."

I think that this is too harsh a view.  However, I also believe that it contains a very important truth.  

When engaging in trade, you must understand what the other fella gets out of the deal. 

It must make sense from his or her point of view, otherwise one of you is fooling the other.

Always look at the trade from the other side's point of view - if you cannot figure out what they are truly getting out of the trade, run away.

I am not sure that this is a gender or sex based insight, as Fuwa suggests.   

But it is important to develop the skepticism - what is in it for the other person? 

Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"

Posted by michael webster on February 12th, 2009

Taking the Law into ones Hand

Fuwa wrote:
If you want justice, you can hire it out in any major city for a nominal fee. If people bring hurt to you and your family justice dictates you bring equal anguish to them and theirs. Court rooms and law does not do that, so throw the fantasy of justice out the window. Once you get over that childish notion you are left with the function of law, which is simply the rules we abide by.

When you get beyond the idea that the law is there to protect you and administer justice you can enter the world of adults.

I say:
If I am reading this correctly it would almost appear as though you are telling us to take the law into our own hands. I couldn’t agree more - to a point.

Posted by Ex Zee on February 13th, 2009

Re: Small Businesses Weigh the Merits of Franchising

After years of being contractually and financially locked into this hell called franchising, my advice for people losing their jobs and considering handing over their savings to buy themselves a job is quite simple...RUN AS FAST AS YOU CAN! Take a job as a grunt at a franchise for minimum wage...trust me...you're net worth will be greater at the end of the week and it's easier to get out.

on February 14th, 2009

killer DD all right

You can do so much due dil that you will NEVER do a deal, every one would be "killed", because there is no such thing as a sure thing. If there was a surefire money back guaranteed investment that had a low entry cost and required no time, no ability and little training, why wouldn't EVERYONE be doing it and then we'd ALL be "rich".

You could spend all the money you had paying consultant after consultant to find the flaws that you couldn't find for yourself, on deal after deal, and each time think "whew they saved me from a bad deal". But maybe they are saving you from a good one too; it is in their interest to be pessimistic because if they didn't kill the deal and you did it and you failed, you'd be suing your consultant for not warning you.

Yes, a lot of deals SHOULD be killed, and a lot of people buy stupid stuff on a whim. But to me the answer is not to hire more consultants to tell you what to do, it is to have some freakn' COMMONS SENSE to begin with. Ever scammer Zor needs a pool of sucker Zees to bite on the bait.

Sure the Zor is a scammer but so many times a prospective Zee knows nothing about business and acts as if buying a franchise is a substitute for having any skills of their own. They should remain employees someplace where they can let their boss think for them, they are not capable of being the boss themselves. People would not bother to troll Nigerian money order scams unless SOMEONE was biting on them, and there would be no market for scammer Zors unless there were enough sucker Zees.

Hiring consultants to do Due Dil is no substitute for your own business judgement. If you don't have the least clue maybe you shouldn't be in business for yourself, because you are not going to be able to afford a consultant with you every minute to tell you what to do, AND THE ZOR WON'T HOLD YOUR HAND EVERY MINUTE EITHER.

on April 12th, 2009

To the prospective franchise Investor

Dear Prospective Franchise Investor, If you are reading these boards, you will notice a common theme in all postings. 1) Hire a due diligence expert 2) don't think the government will protect you if something goes wrong 3) work with an attorney expert to explain to you these agreements and the law. Franchise law is UNIQUE.

I am here to tell you all that I am the victim of not following that advice. I bought a franchise in 08 and closed it by early 09 when I learned I was frauded. I worked the franchise for 8 months and now so far have spent 8 months and almost 1/2 the franchise investment working with lawyers to prove fraud and attack the contracts. What I've learned from this experience is important for the prospective franchise investor to understand in layman's term. This is why you need an expert to help you and you simply should not invest $250k to $1mil, signing away your personal assets (which you will do to banks and the franchisor) without hiring someone to help you with due diligence first:

1. Don't think the law will protect you.
Your contract will say that a) you never were frauded b) no one ever told you to invest and you did so willingly c) you investigated everything independently. The FDD makes clear on page 1 that no government agency ever reviewed what the franchisor filed and it is up to YOU to investigate independently.

2. Your contract will limit the law.
You will sign that you cannot receive damages. That the contract will uphold unless you get it thrown out in court. You will have a limited time to sue. And, at some point, you may even sign a document called a 'general release' where you contract that you will give up all rights to sue, even for fraud.

3. Judges uphold contracts
Don't think that just because something is illegal or fraudulent you can sue. If your franchise fails and you sue for fraud or misrepresentations, the judge will read your contract and say "you signed that this didn't happen"
"you signed that no misrepresentation took place". The judges will most likely throw your case out of court. Even if they don't, again, read above...you limit what you can get back if anything.

4. You are no longer a consumer.
This is the biggest lesson I learned. When you buy a franchise, you are no longer a consumer and consumer laws and remedies for suing no longer apply. YOU ARE AN INVESTOR. This changes how a court perceives the fraud. Let me simplify this: as an investor you buy stock, a company gives guidance for the year, they may or not meet their targets. You can't sue because your investment risk in stock didn't go up. THIS IS EXACTLY HOW FRANCHISE LAW WORKS. You are an investor. Your FDD will tell you you are taking on this risk and making the investment on your own free will. A judge will not look at you as a duped consumer if something goes wrong. They will say "the franchisor told you this was a risk, the franchisor documented that no government agency reviewed this, you signed all over the place that you took on this risk of your own free will".

5. You don't "BUY" a business you "LEASE" a business.
You only own that business for as long as the contract says you own it. You will have to renew, the franchisor retains the right to change ANYTHING they want - even the brand name. You only own a brand and some assets for a 10 year period and you give up your right to continue in the business in most states after 10 years because you will sign that you will not compete.

If the above, which I tried to make simple for those of us who struggle around what these lawyers are writing on BMM, doesn't make sense, you need a lawyer and a due diligence expert. If the above does make sense, you need a lawyer and a due diligence expert.

Don't make my mistake. I learned from it. HIRE an EXPERT. No one is good at everything. Maybe you're good at marketing, or operations, or you can read contracts, or good at finance. You need experts to help you because NO ONE is good at everything. Small Businesses will force you to mostly become good at everything. Especially franchises. Don't think the franchisor is going to train you in a 3 week program to be good at everything.

I hope this diatribe makes the front page of BMM in big bold letters.

Posted by Guest on September 25th, 2009