AAFD

The details of AAFD's upcoming 15th Anniversary Annual Conference can be seen here.  It can also be seen here in the community's April calendar.

Item 20 UFOC Concern Invasion of Privacy

Do franchisees realize that their names, home addresses, and telephone numbers will be published in the franchisor's new UFOC's when they terminate or sell-transfer their franchised businesses.
Mr. Nabors of Fran Synergy indicates correctly that the law concerning UFOC's and the Federal Rule requires the listing of this information but isn't this an invasion of the privacy of the franchisee to accommodate the franchisor and new prospects?
The listing of one's personal information is certainly of no benefit to the ex-franchisees and may be troublesome or worse for them and yet ex-franchisees apparently have no control over this listing of their personal information in the UFOC. It appears that the UFOC itself legally obligates ex-franchisees to agree to the publishing of their personal information in the UFOC's but shouldn't this be disclosed in the UFOC.
If the government has the right under the law to trump the Privacy Act and to require disclosure in UFOC's that invades the privacy of ex-franchisees, ahouldn't the UFOC's indicate to franchisees that this personal information in a mandatory disclosure in the event of termination or sale-transfer of the franchised business.
These UFOC's are widely distributed in the sales process of franchises and thus one's home telephone number and address is also widely distributed to the public.
Why would ex=franchisees agree to talk to new prospects about their personal business after they have broken all their ties with their franchisor? Do normal people talk to strangers over the telephone about their personal business?
Isn't this provision in Item 20 just an artifice that supposedly allows new prospects to gain valuable inside information concerning the franchisor? Isn't this provision only necessary because the failure rate or the success rate of the units in the network is not disclosed anywhere in the statistics of Item 20?
If the failure and success rate were clearly disclosed in the statistics of Item 20, would it be necessary to invade the privacy of ex-franchisees? Is it because of the IMPRECISE statistics of Item 20 that it became necessary to invade the privacy of ex-franchisees to provide the appearance of effective disclosure?

on March 26th, 2007

How many franchisers have formally agreed to the AAFD Standards?

I see six are listed as the 'Seal' recipients, but how many franchise companies have agreed to live by the AAFD's standards or has a franchise agreement that meets the AAFD's standards?

Posted by Tinker on March 2nd, 2007

Robert, Thank You for Sharing!

Robert:

Thank you for sharing this information with the Bluemaumau community and for all that you do as chairman/CEO of the AAFD in promoting 'Total Quality Franchising'.

Being that the Dear Franny Forum is primarily intended for questions relating to Franchising I'll ask Mr. Blue Maumau to post the information regarding your upcoming conference in a more appropriate location and also on the Bluemaumau Calendar of events.

May you and your members have a most productive meeting in DFW!

FranTastic Franchising,Franny

Posted by FranSynergy on March 2nd, 2007

Franchisor Rating

I remember reading in the Franchisee Voice a few months ago about a committee organizing to establish a rating of franchisors.  I looked on the AAFD website for status or information and did not see anything.  Is that an active project?

Posted by JimB on March 12th, 2007

JMHO, But such a small price to pay.....

Although I completely agree with the right of privacy for ex-franchisees, I also believe the very basic information such as name, city & state would be a compromise that both parties could live with.  In this day and time, there are few occassions when people couldn't get someone's home phone and address.  And I may be the exception in this; I can only speak for myself here; but I'd gladly talk with anyone asking for the good, bad & ugly.  Without widespread accountability and disclosure, the franchisors have little incentive to try and do right by their franchisees.  Secrecy works in the franchisors favor and as such, works against franchisees best interest.

I see this simply as a lesser of two evils.

Another way this issue could have been addressed without sacrificing our privacy could have been accomplished with a truly public forum on AAFD's site where all experiences with franchises could have been openly discussed.  Their 'coming soon' forum has been like that for over a year (that I know of); possibly longer.  You would think that an organization that markets itself as one that represents the franchisees would provide the means for dialogue but that has not been my experience.  Actually, my experience has been the absolute opposite.  Who'd a thunk it!

Posted by Tinker on March 26th, 2007

AAFD Seal

Tinker,

There are 13 different franchise systems that have been awarded the AAFD seal.  

But the analysis of how many franchise systems meet some or all of the AAFD's Standards has not been done.

As you know, being awarded the AAFD Seal of Fair Franchising and scoring high on the AAFD Standards are two different things.

I would encourage everyone with an interest in Fair Franchising or Franchise Associations to attend the AAFD Conference.

Michael Webster PhD LLB

Misleading Advertising Law

Posted by michael webster on March 2nd, 2007

On Franchisor Ratings

I cannot speak for the AAFD, but my own view is that a rating of franchisors as to the fairness of their contracts according to the AAFD Fair Franchising Standards is of use only to franchisees within the particular system.

A single ranking is likely to be just as misleading as the Entreprenuer 500 list.

Michael Webster PhD LLB

Misleading Advertising Law

Posted by michael webster on March 12th, 2007

Not a Small Price for Most

I understand, Tinker, that you won in your mediation with Meineke and you don't have to worry about them suing you and are free to talk if anyone checks with you. You are in an enviable position and are willing to let them invade your privacy to help incoming franchisees.
However, the new rule doesn't rule out confidentiality clauses (gag orders) and most of the churning franchisors will continue to use the "gag orders" and require general releases from their franchisees when they approve a transfer of a franchised business in an asset sale.
Even those who have terminated or been terminated may not talk very freely with strangers because there may be suits for lost royalties, etc.. and why should they take any chances of retaliation from the franchisor for bad mouthing them.
As Paul Steinberg indicated, most of the Zees he has dealt with don't call these names anyway and when they do, the sales people just explain that these people were incompetents who couldn't make it, etc...
This change to the rule will not help much and again, the invasion of privacy involved in the distribution of ex-franchisees names, home addresses, and telephone numbers (that is of no advantage to them) would not be necessary if Item 20 indicated the reasons for the transfers and acquisitions in the broadest sense. That is, those who transferred their franchises at a loss and those who transferred their franchises at a profit.
I, as an ex-franchisee would much prefer to declare the status of my transfer in Item 20 for publication over the publication and distribution of my name, home address, and telephone number to hundreds of strangers who really shouldn't have this personal information.
It is only because Item 20 is so imprecise that it is necessary to resort to this invasion of privacy to provide the appearance of effective disclosure.

on March 26th, 2007

AAFD Instrumental in Hiding Failure Rate i.e. Turnover Rate

I think these associations have been instrumental in hiding the failure rate, i.e. the "turnover rate" among large franchise networks in government rule and regulation.
Now and then they have talked about turnover rate but they are very careful not to tie turnover with "failure" in any of their discussions.
Words are used to veil the truth but the truth is that the "failure rate" or the "turnover rate" of a franchise network is information that the prospective franchisee should have in hand before they sign the agreement and incur the risk of losing all that they have to buy a famous brand name.

on March 2nd, 2007

There were six on the newsletter link

Were some missing or are some of the franchising systems owned by the same entity? 

Also......................no analysis?  Well then how do they evaluate their mission's success or lack thereof.  On the surface, 13 franchisors in 15 years doesn't bode well but I understand and agree that there are other issues they try to address.  I completely support their standards and their 'bill of rights'.  As I've said before, they are noble goals and I only wish more progress could be made. However, how long are people going to really believe that  negotiations and education alone are going to create sufficient progress towards these goals?  

Posted by Tinker on March 2nd, 2007

As suspected...........

The whopping 13 franchise systems that have agreed (in theory) to the AAFD's standards and thus were evaluated and received their 'seal' is actually 9 when you adjust the six hotels listed to the actual number of TWO.  These two hotel companies each have three brands. 

So 15 years; 9 companies. 

Posted by Tinker on March 10th, 2007

Numbers Are Louder Than Words

Wouldn't it be more effective disclosure to require the number of transfers made at a profit and the number of transfers made at a loss? Just why are prospects telephoning ex-franchisees anyway? Isn't this matter of profit or loss the most relevant question a prospect would ask of an ex-franchisee? Isn't this failure to reveal the actual failure rate in the franchise network anywhere in the UFOC a subsidy of the franchisors that misleads those franchisees who do not hire experts to help them? And, isn't this subsidy provided to the franchisors at the expense of invading the privacy of the franchisees to provide the appearance of effective disclosure requirements by the government?

on March 26th, 2007

Failure Rate

I am afraid that I don't understand this claim at all.

Every prospective franchise is free to interpret the item 20 ratio as the probability of complete failure and minimally the loss of all their investment.

I actively encourage prospective franchisees to do so --any other course of action would irrational.

Unfortunately, it is my experience that few prospective franchisees do this grade 3 math.

Bob Purvin's brillant resource, Franchise Fraud, is simply not read by most prospective franchisees.  

Michael Webster PhD LLB

Misleading Advertising Law

Posted by michael webster on March 2nd, 2007

The AAFD Exposed the 'Myth' of Failure rates

Dear Guest,

Please check your facts!  My book, The Franchise Fraud, blew the whistle on misleading failure rate statistics -- check out Chapter 4 titled "Stealing from the Middle Class."  An AAFD Chapter filed a multi-million dollar action against a major franchisor on this very issue!

I can't think of one thing the AAFD or any franchisee association has ever done to exacerbate the problem of false failure rates.  Indeed, it is one of our first (and major) achievements!

on March 9th, 2007

Info on AAFD Action against Major Franchisor

Does anyone have any more specific information on the action that was filed against a major franchisor for misleading failure rate statistics, as indicated in the post, above, by RPurvin?

on March 15th, 2007

AAFD & Failure Rate

I have to agree with Michael here, as I don't see a correlation between the AAFD and failure rates.  I would like to ask the guest, 'how would you like to see this information presented in the UFOC?'.

 Would this be sufficient?  When they list the franchisees that have left the system, should they just state whether the franchisee left the system 'satisfied' or 'dissatisfied'? 

Then you're free to intrepret that data the way you would like.  Unlike some of your statements before, people do transfer their store and they aren't considered failures.  Some people retire for good, or maybe something else has come up in their lives, which are forcing them to sell. 

on March 2nd, 2007

You make my point, Michael. ---Cooperation to Obscure

Item 20 appears to have been contrived to permit franchisors to submit statistics concerning their networks that obscure the failure rate of the franchised business plans. It must have been a "deal" struck between the regulators and the franchisors.
They apparently decided that "Terminations" needed an explanation but that "Sale-Transfers" or "Transfers" could be disclosed with no explanation as to the reason for the transfers and that the name and address of a few ex-franchisees would be suffient for the disclosure docement. The franchisors have this information at hand and it would not be a regulatory burden for them to disclose the failure rate.
While you are a professional and an attorney and know that most transfers and turnovers are due to business failures, the naive investor does not know this. Also, as has been discussed before on this network, the naive investor who is mortgaging his house aznd maybe cashing in his 401 to get the cash to buy and start up the franchised business to replace his lost job is not prone to paying an attorney $100 to $200 an hour or $1,000 to $1500 to review the UFOC for him unless he has money to burn. The regulators know this too or they wouldn't both putting out the "Guide".
The guidebook put out by the FTC will be a further disservice to the franchisee if it doesn't completely and clearly indicate to the franchisee that all of the TRANSFERS and TURNOVERS are probably business failures and that they will have to do the math to determine the failure rate of the network business plan.
Since they are permitting the franchisors to do business without making them disclose earnings and sales figures, etc.. and not making the franchisors disclose the failure rate in the network, they might as well require, under law, that an attorney dissect the contract for the prospective franchisee before a purchase or a loan for the business can be negotiated (tongue in cheek).
Of course, there are always going to be failures in the BEST of FRANCHISE NETWORKS but this cooperation between the franchisors and the regulators to obscure the actual failure rate of units in the franchisor's network is suspect and not in the interests of the franchisee who makes the entire investment in the unit that bears the famous brand name, and who takes the entire risk and the entire loss in failure. I read one "professional" who indicated that any failure rate over 5% is a warning sign and I read another comment that said smaller networks with fewer units and low turnover rates were the safest, etc.. And, of course, there is lots of commentary on Google that says the failure rate of franchised businesses is not really known, etc...
But, I believe the dirty little secret is that "the powers that be" know that the disclosure of the failure rate would inhibit the sale of franchises in some networks, especially the very large and visible networks, and this is why the "failure rate" is not required to be disclosed to government or to the prospective franchisees.
Again, Michael, the only one hurt in failure is the little franchisee who has lost everything. The franchisor gets the franchisee's assets one way or the other if he wants them and these assets continue to work for the franchisor and the franchisor has collected royalties and fees and commissions from start to the finish of the franchisee. The churning franchisors continue to enjoy benefits from the assets of the failed franchisee when standby franchisees acquire the assets for almost nothing. The Banks don't lose, the SBA doesn't lose ----the regulators don't lose ----the only loser is the franchisee. And, for this reason, alone, the government should do a better job of protecting franchisees.
It is pretty obvious that the Associations aren't going to do the job.
Bob Baber tried to make a point by taking his own life and we see that Quiznos took some positive steps to help their franchisees but I bet they are still not disclosing the "failure rate" of units in their network or the number of discounted stores in the UFOC for this year.

on March 2nd, 2007

AAFD ----RPurvin -----Failure Rate

I will get your book Franchise Fraud and read it. It appears that you are aware that there is much "Stealing from the Middle Class.", and covered this in your book.
Thank you for filling me in on all of this.
I still don't understand why Item 20 is so imprecise and why the big networks can hide their failure rates and "churn" an appearance of viabiklity to the public and make the Top 5 in Entrepreneur ----that is repeated by AARP.
Apparently, government doesn't want to know the rate of failure of the business plan and this is why Item 20 is Imprecise? The status quo, of course, allows a lot of "stealing" to continue.
Why hasn't the AAFD had more success in regulating franchising at least as well as securities. Such regulation would provide a little more protection for francnhisees.

on March 9th, 2007

Item 20 Litigation

The AAFD did not file litigation.

But the MBE litigation against UPS is claims that UPS mislead the MBEs on the validity of the new business model.

Michael Webster PhD LLB

Misleading Advertising Law

Posted by michael webster on March 15th, 2007

Info on AAFD Action against Major Franchisor

Sorry for my tardy reply to this post.  I had not noticed the request previously. 

Several AAFD chapters and affiliated associations have raised grievances and filed claims regarding inflated 'success rate' statistics.  In the mid-1990's Mail Boxes, Etc. claimed a 98% success rate.  The AAFD supported an MBE franchisees chapter, whose members filed a group action (with AAFD support) that these claims fraudulently misrepresented the success rate of franchisees based on evidence (at that time) that about half the system was financially challenged, with an attrition rate of more than 20% a year.

This case was settled in 1996 or 97, and the settlement sum was disclosed in the MBE UFOC at that time. 

In the 1990's most of the actions taken by AAFD chapters involved false 'success rate' claims.

For more information, please contact the AAFD offline.

 

Posted by RPurvin on March 30th, 2007

JD --Confidentiality agreements silence the loser

Franchisors silence the failed franchisees who leave their networks with "confidentiality agreements" that they must sign to obtain the approval of the franchisor to "give their unit away" for pennies on the dollar in an asset purchase agreement. Franchisees also sign general releases not to sue the franchisor or the new franchisee but, of course, the franchisor retains all of his rights to sue the franchisee. The "failed" franchisee is not prone to talk to a stranger over the telephone about his experience with the franchisor.
There has been some new language in the new rules that may make "confidentiality agreements" more difficult for the franchisors and that may help franchisees in the future. Paul and Michael may weigh in on this.

on March 2nd, 2007

Item 20 Disclosure

Dear Guest;

I am afraid that I continue to disagree.

The primary issue is that prospective franchisees do not read the UFOC, nor item 20, with any degree of skepticism.

Item 20 could be bolded in large red letters, danger Wil Rogers, danger, and prospective franchisees would glide past it.

This is not a knock on the intelligence of prospective franchisees.

It is however a big knock on the quality of advisors they employ.

Michael Webster PhD LLB

Misleading Advertising Law

Posted by michael webster on March 2nd, 2007

Item 20 and Failure Rates

Guest,

You have asked several important questions in your reply.  Some are thoroughly discussed in my book, but let me give you a brief response to each:

1.  Regarding Item 20, I think we must give the regulators credit for trying to get this issue correct.  When my book came out in 1994, the franchising industry claimed a 95% 'success rate.'  I was the first to reveal that this claim was based on erroneous statistics regarding store closures that were 1) unaudited and 2) ignored sales and transfers.  The premise was that if a store hadn't closed it was a success!  The same store could have been transferred 10 times, with each owner losing his or her shirt, but if the store was still opened, it was measured as 10 successes!!!  In the late 90's the state regulators barred the use of success rates (thus the shift to failure rates) and revised Item 20 to disclose all franchisees who had left the system.  We are in a much better place today than we were 15 years ago, when this issue was first exposed.

2.  In my book I gave an analysis of the Entrepreneur 500--you will find it amazing reading.  Before my book came out Entrepreneur Magazine published the actual scores of each company it graded.  In each of the two years I analyzed, Entrepreneur graded some 1700 franchisors and ranked them according to their total scores. The top rated company got more than 5000 points under their grading system.  In both 1992 and 1993, the number 500 rated company each got about 60 total points!  What does this say about the other 2000 franchise companies in operation.  What does this say about the quality of the Franchise 500.  After my book came out, Entrepreneur stoped disclosing the actual scores.

3.  The franchising community claims it is regulated the same as the securities industry, but this is a false statement.  In the securities industry a company must meet minimum requirements to gain access to public markets, and must verify that its securities are sold to suitable investors.  Franchising has no minimum suitability standards--a franchisor (who makes required disclosures) can sell a $500,000 investment (franchise) to an investor, when it might not be able to sell that same investor $5000 of its stock.

4.  The AAFD's success, or lack there of, is in the eye of the beholder.  First, there has not been a groundswell of support from franchisees to match the millions of dollars franchisors invest annually to protect their rights.  (Which is their right to do).  If only 20% of the estimated 750,000 franchisees would support the AAFD at $100 per year, we would match the IFA annual budget.  But we get less one million dollars a year in annual support--which we have grown to reach--the mismatch in resources is one of the reasons we have stayed away from the legislative arena.  More importantly, our members are small businesses who are largely leary of more government regulation and intervention.  So our efforts have been focused on developing fair franchising standards and virally introducing these positive influences into the marketplace.  When we started few companies offered protected territories, almost none provided performance data, few recognized either franchise associations or advisory councils, or protected ad funds, or purchasing protections, and you almost never saw a right for a franchisee to mediate or to resolve disputes locally.  All of these concepts, which we helped to influence, have worked their way into the franchise marketplace.  We have helped double the number of independent associations over the past 10 years, and we have inspired collaborative relationships for the good of franchisors and franchisees -- often helping a franchise system to completely reinvent itself.  The companies that have earned the Fair Franchising Seal have all voluntarily agreed to be bound by the provisions of the proposed 'fair franchising legislation.'  We have had some legislative and regulatory success along the way, but that hasn't been our focus, so I'll leave that report card for another day.

Looking at how far we yet need to go, it may seem as if the AAFD has made little progress.  But turn around and look behind you, and our record of achievement is one I am personally quite proud of.

Posted by RPurvin on March 9th, 2007

Purvin AAFD indicated a Chapter filed an action!

Michael Webster---
Didn't Mr. Purvin indicate in his post on Item 20 that an AAFD chapter had filed an action ------I don't understand your statement" "But the MBE litigation against UPS is claims that UPS mislead the MBEs on the validity of the new business model."
Please read Mr. Purvin's post on this site re Item 20.

on March 15th, 2007

AAFD and Franchisee Associations

Bob;

It is important for all prospective franchisee associations to learn about how the major franchise systems have always relied upon independent franchisee associations.

I don't think we, franchisee advocates, do a good enough job triumphing those major franchisee associations.

Michael Webster PhD LLB

Misleading Advertising Law

Posted by michael webster on March 15th, 2007

AAFD Action against Major Franchisor MBE-UPS

It appears that MBE-UPS has not changed its ways and is, by hiding the failure rate of the stores in the Network, still inflating their success rate and indulging in "churning" to present a false appearance of viability to the public.
Hopefully, the new actions asgainst MBE-UPS will reveal their practices to the public.
Thank you, Mr. Purvin, for your response. I know it is difficult for the AAFD to fight the lobbying efforts of the franchisors who so often defeat any legislation that would effectively help franchisees, but I know you do the best you can.

on March 30th, 2007

But, they don't employ advisors much of the time

I take your point! However, you know that there is a large percentage of franchisees who puchase franchises, especially famous brand names, without getting professional advice -----and the regulators know this as well.
I think you ought to knock the regulators and the legislatures who so often serve the special interests at the expense of the "little guy"!
As I have said before to you. I certainly agree that EVERYONE who is thinking of buying a franchise from ANYONE should get professional advice in view of the sad state of the regulatory process.

on March 2nd, 2007

Bingo - You Are Right - JD

Once a franchisee fails it is legally impossible to discredit the claims of the franchisor. The franchisor has the terms of the franchise agreement as protection and the money to fight a legal battle, while the franchisee is licking his wounds and broke.

The other amazing fraud is how franchisors count the failures. One franchise with huge claims and a huge amount of failures, classifies the failures as "inactive", not failed. What is a huge amount of failures? At least 90% fail and yet no one ever fails, they are just inactive. They are drained of their finances and then abandoned when they can not/ will not pay the monthly management service fee.

Selling their franchise is impossible because you can not identify the franchisor by name when you go to sell it. Try to sell a failing franchise business without naming the franchisor. It is crime that this franchise continues and there is really no way to blow the whistle. When a prospective franchisee calls you are at risk of still more financial damage, because you have signed your rights away, including the right to give out negative information. It is not an accident that the franchise agreement protects the franchisor, it is by design. You can't get any bad press if you prevent the franchisee from publishing the failure.

My 2 cents.

WSI

on March 10th, 2007

AAFD Record is Good ----Item 20 UFOC

Thank you for your informative response. Now, I understand how much you have accomplished and I understand how difficult it is for an organization without great financial sujpport to fight the stronger lobbying organizations. So many small franchised businesses probably do have a hard time coming up with that $100.00.
It appears that the New Rule will make it even easier for "churning" networks to fail to reveal the actual business failure of the units in their network. Do you agree?
Because I approach this subject from a very negative experience, it still appears to me that Item 20 is a disservice to the franchisee who doesn't hire an expert to dissect the UFOC and Item 20.
Because so many business failures are hidden behind "asset sales" and now, under the new rule, acquisitions after termination, I think Item 20 is a disservice to the franchisees who do not use experts to assist them in their franchise purpose.
I think Item 20 should bear a disclaimer from the regulators that states that the success rate and failure rate of the transferred and acquired stores is unknown, at a minimum.
If the government is going to permit disclosure without sales figures and without earnings, etc.. and also allow the franchisors to obscure the failure rate of the business plan, they are indeed regulating on behalf of the franchisors and pretending to regulate to protect the weaker party, the franchisee.
If franchisees are going to be sacrificed to the "big picture" by the Congress and the FTC, you are a voice that is heard by government and the Congress and it is my hope that you will work toward regulating franchising at least as well as securities. I understand that there are powerful sources who will continue to try to prevent this from happening.
I apologize for my statement in the prior post that the AAFD helps to hide the failure rate -----but I did get your attention and for this, I am grateful.
Thank you for all your good work and for all the good work you will do for franchisees in the future.

on March 10th, 2007

Purvin/Guest/Tinker & More

First, let me say thanks to Robert Purvin, for his recent participation in the Bluemaumau forum.  In order for Bluemaumau to continue on the path of becoming the most valuable franchise community on the internet, it is imperative that we continue to attract the participation of experienced franchise professionals, like Cohen, Frankman, Glass, Hayes, Kezios, Mathews, Purvin, Sanderson, Sparks, Steinberg, Stewart, Webster, and GUEST!

In my opinion it is important that we somehow all learn to attack the idea, situation or philosophy and not the individual or entity.  We must learn to disagree without being disagreeable.  Without this level of civility, decency and courtesy, both the growth and the value of this forum will never be truly realized.  Example: Guest: “I apologize for my statement in the prior post that the AAFD helps to hide the failure rate -----but I did get your attention and for this, I am grateful”  Your end does not justify making rude, or unfounded statements!

I teach and preach that Success is the gradual realization of predetermined worthwhile goals.  Mr. Purvin, correctly states: “We are in a much better place today than we were 15 years ago, when this issue was first exposed.”  Improvement seldom comes as fast, or necessarily in the manner in which in one may want.  However, continuing to move the ball forward is the key.  The AAFD, AFA, IFA and many other individuals and various organizations have made franchising a better place, and I’m optimistic that they will continue to do so.

Regulation of franchising is often compared to the regulation of securities, and much discussion has taken place here in this forum regarding such comparisons.  I believe it is simply an illogical comparison, because the two ‘securities’ and ‘franchising’ are in fact two very different animals.  Mr. Purvin states: “In the securities industry a company must meet minimum requirements to gain access to public markets and must verify that its securities are sold to suitable investors.” Franchisors must also meet ‘minimum requirements in process and procedures.  Securities in the ‘private sector’ are often sold with much less regulation than a franchise offering.  Public Securities have less of a burden in ‘selling to suitable investors’ than most registered private offerings.  Franchisors for the ‘most part’ try to deal with ‘suitable investors’; it would be somewhat self-defeating to do otherwise.  I will admit that some franchisors do a much better job in selecting ‘suitable investors’ than do others. 

Mr. Purvin, goes on to state: “… [Franchisor] can sell a $500,000 investment (franchise) to an investor, when it might not be able to sell that same investor $5000 of its stock.”  The word ‘might’ certainly keeps the statement true, however it’s somewhat misleading, although unintentional, because there’s a variety of blue-sky laws, exemptions, etc… that would typically allow the ‘seller of the stock’ to sell to a specified number without regard to ‘qualified investor’ status of the investor.

Mr. Purvin economic explanation of why the AAFD has chosen to stay away from the legislative arena, makes a lot of sense.  One must choose the battles that they fight, and it doesn’t make sense to enter into a battle armed with nothing but a ‘pen-knife’ when your opponent is armed with high-powered rifles, hand-grenades, and self-propelled rockets.   I will however, say that franchisees should join and PARTICIPATE in the AAFD, AFA, and IFA—so that their voices can be heard.  It’s like if you don’t vote, don’t complain, or perhaps it’s more like you’ve got to fuel those who are working on your behalf.  How would our military defend us, if we failed to provide guidance or funding?  To the guest who states that the small business owner may find it hard to come up with $100, I say that is ridiculous!  If they don’t have a $100 to invest into one of the leading trade organizations working on their behalf, then they need to simply get out of business!

Purvin: “More importantly, our members are small businesses who are largely leary of more government regulation and intervention.”  And as they should be!  I’ve suggested on numerous occasions that the burden of regulation falls disproportionately on the small business owner.  I’m aware that GUEST does not want to hear this, or agree with it!  However, I suggest that you consider the possibility that it might be right.  It is not just me saying it, or Purvin…it is by proxy 1,000’s of members of the AAFD and 100’s of thousands of other small business organizations.

There are all types of ‘help’ in the world, it’s a lot like medicine….if you don’t take it….it can’t help you!  The AAFD offers a Franchise Opportunity Review to both members and non-members for just $950/$1,500 respectively.  I wonder how many prospective franchisees took them up on this GREAT service last year.  I bet in the scheme of things not very many.

In closing let’s all try to find ways that encourage more people to come and participate in our discussions.  It’s great to be able to voice our opinions, debate and to discuss various issues, and to share and gain insight relating to franchising.  It is not cool to be NASTY just to be NASTY!

Believe & Succeed,DaleFranSynergy, Inc.Synergizing Franchising!

Posted by FranSynergy on March 10th, 2007

MBE Chapter

The MBE franchisees are very active in the AAFD.

They have their own franchisee association, and one of their attorneys, Michael Hankes, has been on the AAFD's Standards Committee since 1993.

Do you want a link to the last MBE Court victory over UPS?  Send me an email and I will send you the link.

Michael Webster PhD LLB

Misleading Advertising Law

Posted by michael webster on March 15th, 2007

AAFD and Franchisee Associations

AGREED!!!!

Posted by RPurvin on March 16th, 2007

Competent Advisors

The first page of the UFOC clearly states that the regulator has not checked the facts and the prospective franchisee has to do so.

This is in bold and capital letters.

Prospective franchisees don't consult competent counsel, because they don't want to pay good money for bad news.

But I don't know what more the regulators could do to encourage the prospective franchise to get competent counsel.

One of the regulators, Illinios, has an excellent due diligence package online.

How many prospective franchisees have used it?

Worse, how many attorneys used by prospective franchisees are aware of it? 

Michael Webster PhD LLB

Misleading Advertising Law

Posted by michael webster on March 2nd, 2007

Employ advisors in view of???

Guest Writes: "you know that there is a large percentage of franchisees who puchase franchises, ... without getting professional advice ..."  "I think you ought to knock the regulators and the legislatures....." 

We've all been told or at least heard since childhood 'don't sign anything without your attorney reviewing it".   We all know that when making what is the average persons largest investment, a home, that you should involve an attorney.  Nevertheless millions of people, buy homes every year without an attorney.  We have LAWS/REGULATIONS which require people to wear seatbelts, yet thousands die every year in auto accidents because they weren't wearing a seatbelt.

Your closing statement "in view of the sad state of regulatory process" makes it sound like you believe that with more regulation there would be no need to for professional advice.  That's just CRAZY!  People must be educated about proper due-diligence, not oh I need my government to take care of me.  It is this type of thinking which creates generational dependency on welfare.

Believe & Succeed,DaleFranSynergy, Inc.Synergizing Franchising!

Posted by FranSynergy on March 2nd, 2007

Please go to the Political Advocacy Forum

Guests and members,

A number of posts in this thread are not related to the forum topic of AAFD's upcoming annual conference in April. Please post discussions of franchisee legislation and political advocacy there, where they would be more appropriate. Besides, someone who wants to research restrictions, problems and why franchising should or shouldn't be regulated  would naturally go there.

Let's keep these discussions relevent to the author's posting. That makes it more reader friendly as well.

Mr. Blue MauMau

on March 3rd, 2007

And yet the AAFD echoes the franchisors' mantra

that regulation is NOT necessary and it would actually harm the franchisees.  This is where my problem lies with their representation.  While I agree that trying to encourage compromise and fairness by working with those willing to meet their franchisees halfway is certainly an approach worth trying; it is NOT the only solution.  In addition, after 15 years with so few franchisers stepping up, I would hope even the AAFD would realize their limitations and at the very least, stop speaking out against legislative options.  Franchisees have tried the carrot for 15 YEARS; I for one say it's time for the stick.

Posted by Tinker on March 10th, 2007

I'm confused! AAFD Chapter Action

Are you talking about an action that was filed against MBE before they became UPS?
Isn't there az new action in the courts against MBE-UPS?

on March 15th, 2007

I'm confused! AAFD Chapter Action

Are you talking about an action that was filed against MBE before they became UPS?
Isn't there a new action in the courts against MBE-UPS?

on March 15th, 2007

They are blinded by the Big Brand Name

When the brand name is famous and visible in the community, this blinds the prospective franchisee to the need for advice and they think the "warning" by the government applies to small and unrecognizable franchise opportunities and that, of course, a big and respected corporation with a famous brand name would not cheat them. They believe that the SBA and Vet Fran and Entrepeneur and other sources would not push an unviable franchise opportunity to them.
They believe there is no need to further check out this big brand name franchiusor who is so visible in the communities of our country.
Government knows this and the obscuring of the actual failure rate may be how these big brands get so big in the first place.

on March 2nd, 2007

Attorney, Accountant, Banker, Buyers Agent!

Michael's post is EXACTLY RIGHT!  I've gone as far as posting those BOLD CAPITAL LETTERS, where it says we haven't checked it, we don't know if it is accurate.....

Most Attorney's are all about mitigating risk.  Attorney's have less risk by saying NO, than by saying 'It looks good to me'.... John Q Public has figured this fact out, and many attorneys have begun to explain this reality  to their clients.  Thusly creating a situation whereby the buyer disregards much of the Attorney/Accounts advice for this reason.   This is why I think a 'Buyer's Agent' is so very important to the process.  Use the Attorney to work out the mutually acceptable language. 

I would like to see less regulation and less 'litigation mentality' so that we could move back in time whereby one could obtain REAL ADVICE from key business advisors such as Attorney, Accountant, and Banker without them being concerned that if you fail, you'll blame them, and sue them for malpractice.

Believe & Succeed,DaleFranSynergy, Inc.Synergizing Franchising!

Posted by FranSynergy on March 2nd, 2007

Right On! Tinker AAFD Compromises too much

It is so obvious that Item 20 is a deal that has been struck and that the bargaining for these deals are out of the control of the franchisees. So often when organizations like AAFD can't beat them, they join them to perpetuate their own interests.
Mazybe the State laws concerning relationships will prevent some of the fraud and the bullying and we can raise our voices for more effective regulation at both state and federal level.
I have often wondered how the franchisors get permission to publish the personal information of ex-franchisees in Item 20. Why would ex-franchisees agree to this. Isn't this an invasion of their privacy?
Give me your thoughts on this.

on March 10th, 2007

Actions Against UPS

There are a number of actions taken by MBE franchisees against UPS regarding the misleading information given to the MBE franchisees about the profitability of the UPS business model.

Michael Webster PhD LLB

Misleading Advertising Law

Posted by michael webster on March 15th, 2007

Beyond Comprehension

This kind of logic is just 'Beyond my Comprehension'.  The buyer's aren't stupid.  The disclosure document doesn't say that it only applies to small & unrecognizable brands.  These buyers don't believe every weight loss and baldness cure that has a late-night infomercial.

They cry foul, when they FAIL.  The same one's screaming foul, are the same one's which months earlier had probably provided glowing testimony to other prospective franchisees.  Exempt the few who have legitimate complaints.

The objective must be to teach prospective franchisees to EVALUATE EVERYTHING, and not to SIGN anything they don't understand or that does not include everything which has been understood to be 'part of the deal'.

Believe & Succeed,DaleFranSynergy, Inc.Synergizing Franchising!

Posted by FranSynergy on March 2nd, 2007

Dale and Michael appear to agree but I don't!

Dale and Michael seem to agree, at least, that big and famous brand name franchisors may sell you a bad product with a high failure rate and that you need an advisor to tell you this.
I think Michael and Dale would agree that the "failure rate", i.e. the turnover rate of the franchise network would be one of the most important factors that they would look at before they advised you to buy or not to buy. And, they would know that almost all transfers are business failures.
I still don't understant why, if franchising is so valuable, that the true failure rate of the franchise business plan has to be obscured under the federal rules. It is not as if the franchisor doesn't have this information right at his finger tips in that they have a paper trail of new franchisees, terminations, and transfers in their record systems. They know that first franchise units that sell for 5% of their advertised startup&capital expenditure figures in asset-purchase are business failures and the franchisee is often thrown into bankruptcy even after the asset-purchase sale when he is left with debt to service.
They could easily use the symbols for minus and plus in the transfer columns and the equal sign for those rare units who may have transferred their franchises and recovered their initial investment costs. This would require no bookkeeping to speak of and the viable franchise networks would even have plus signs for those units leaving the network at the end of the franchise terms.
Instead, the regulators use the ex-franchisee and the address and telephone numbers of ex-franchisees to present the appearance of disclosure of the "viability" of the network. (Do these ex-franchisees agree to have their personal information, their home addresses, and their telephone numbers displayed in the UFOC's?) Why would they agree to this?)
Again, I ask. What is the purpose of Item 20 in the UFOC in terms of its assistance to the franchisee? Is Item 20 a means for the government to deny that they have any knowledge of the failure rate of a franchise network?
In Dale's last paragraph he states that he would like to see less regulation and less "litigation mentality" so that we (meaning whom) could move back in time whereby one could obtain REAL ADVICE from key business advisors such as Attorney, Accountant and Banker without them being concerned that if you fail, you'll blame them, and sue them for malpractice." This paragraph, Dale, is beyond my comprehension. What are you saying?
If any of these advisors do their best and point out the failure rate as well as the success rate of franchisors and other important factors and put it in writing, how could they be sued if the franchisee failed. Aren't you reaching?????
I know you know that even if the actual failure rate of franchise business plans is disclosed that there still will be prospects who will buy these franchises in spite of a high failure rate----perhaps because recent events in the marketplace will make them more profitable, etc...in the future.
You would like to move back in time but in the meantime you want to protect the status quo, that protects you.

on March 2nd, 2007

I'll gladly give up my privacy

for an opportunity to save someone else the nightmare we experienced with Meineke.  Of course, I'm sure there are those that just want to forget their bad experiences and move on with their lives but I can only hope that the vast majority would feel the same as we do.

Posted by Tinker on March 10th, 2007

Sir Guest, Every Transfer is Not a Failure...

Your franchise sale may have been a failure, however there are many more transfers that are simply acquisitions of "going concerns". If you are correct then all the transferred Hiltons, Comfort Inns, Hampton Inns, McDonald's, Burger Kings, Wendy's, Applebee's, Fridays, Subways, etc...would have to be failures. By the way many failed franchises don't sell they close.

And your odd characterization of "advisors" seems a bit specious to me. If a prospective franchisee wants an advisor beholden to them they should hire a professional such as an attorney or CPA. If you mean a franchise referral broker, they work for franchisors.

You need to sober up. Your contempt and consuming hate for franchising blinds you to TRUTH IN FRANCHISING!

Posted by The glass is... on March 2nd, 2007

Guest: May Disagree!

GUEST: Dale and Michael seem to agree, at least, that big and famous brand name franchisors may sell you a bad product with a high failure rate and that you need an advisor to tell you this.That makes no sense.  Allow me to translate for you what I said, which was: “The average 1st time Franchise buyer does not have the Objectivity, Experience, Knowledge, Skills, Training, or Resources to evaluate, and negotiate a transaction of this type, and therefore should retain competent counsel.  I went on to state that: One SHOULD NOT expect or desire current or future governmental regulation to be a substitute for proper due diligence under the assistance of competent counsel.

GUEST: I think Michael and Dale would agree that the "failure rate", i.e. the turnover rate of the franchise network would be one of the most important factors that they would look at before they advised you to buy or not to buy. And, they would know that almost all transfers are business failures.As for Item 20 Lists of Franchises, I would not agree that it is ‘one of the most important’ because I believe it is the ‘totality of the evaluation’ that leads to an informed, educated decision.  I would agree that Item 20 deserves its review.  Question must be answered: is the turnover as a percentage within an acceptable range?  Is this number trending up or down and why?  What is the franchisor doing to reduce this number?  Etc….  I do not however agree that I know ‘ALMOST ALL’ are failures, because I don’t until I discover that.  I do agree with Michael in that NO HARM is done by assuming that they are, until discover proves otherwise.  It’s similar to figuring income low, and expenses high.  One must also understand that turnover is normal!  The lack of turnover is as much of a warning sign, as too much; the same can be said for failure.

Guest’s Next 4 Paragraphs: seem to be much more about promoting some contrived conspiracy theory whereby Franchisors, Regulators & Government agencies are working together to the detriment of the prospective franchisee.  For the most part just utter non-sense. 

GUEST: In Dale's last paragraph he states that he would like to see less regulation and less "litigation mentality" so that we (meaning whom) could move back in time whereby one could obtain REAL ADVICE from key business advisors such as Attorney, Accountant and Banker without them being concerned that if you fail, you'll blame them, and sue them for malpractice." This paragraph, Dale, is beyond my comprehension. What are you saying?My use of the word ‘we’ meant ‘we as a society’.  As for what I was saying.  We have so much regulation and litigation, that the Attorneys and Accountants are no longer at liberty to provide real assistance in the evaluation, negotiation, development and implementation of Strategic Business Plans.  This is why people often get upset with Attorney’s, Doctors, and Accountants because they interpret and tell us our options, when ultimately we want them to tell us what to do and why or to tell us how to make what we want to do, work.

GUEST: If any of these advisors do their best and point out the failure rate as well as the success rate of franchisors and other important factors and put it in writing, how could they be sued if the franchisee failed. Aren't you reaching?????No reaching/stretching here.  Anybody can sue anybody these days, for nearly any reason.  The cost to defend a frivolous lawsuit can easily approach 50 to 100 thousand dollars.  It is not uncommon for the failed business person to point the finger any anyone and everyone who was involved in the process.  I’ll leaver further commentary to these professionals.

GUEST: You would like to move back in time but in the meantime you want to protect the status quo, that protects you. I really have no idea what you mean!  Who’s protecting me and from what?  I simply believe that excessive regulation has a disproportionate negative impact on small business.  I believe we need to improve the due-diligence of prospective franchisees AND OF existing and prospect franchisors.

Believe & Succeed,DaleFranSynergy, Inc.Synergizing Franchising!

Posted by FranSynergy on March 2nd, 2007

New Item 20 UFOC Rule re Confidentiality Statements

Would any of you experts post in on the impace of the NEW FTC RULE on Confidentiality Agreements and Gag clauses.
Will this mean that ex-franchisees will REALLY be able to talk or will the franchisors find some way to silence those who would ruin a sale.

on March 10th, 2007

The GLass returns but forgot his Windex

I didn't say every transfer is a failure but, again, you make my point. If the government thinks that the franchisors should clarify the "termination" column with a reason for the termination, why don't they think the "transfer" column needs clarifiocation as to the reasons for the transfers.
It is not my consuming hate for franchising that blinds me but rather your determination to prevent TRUTH IN FRANCHISING that consumes you.
Again, I ask! What is the purpose of Item 20 Statistics in terms of disclosure to the franchisee? It appears that Item 20 was designed and contrived to permit disclosure without disclosing the rate of failure or the rate of sucess of the franchise business plan to either the regulators or the franchisees. If nobody, including the regulators, know the reasons for the transfers, both the failure rate and the success rate are hidden. But, of course, as Michael has indicated, he routinely treats "transfers" azs business failures in his assessment of Item 20.
If the viability of the franchise network is based only on its visibility and its visibility is the result of "churning" and standing up the network on the backs of failed franchisees, this should be revealed in Item 20 through an indication that the reason for the transfer was either a business failure or a success.
I think it is you who needs to sober up and look at what is in your glass. I don't drink! Here's to TRUTH IN FRANCHISING!

on March 3rd, 2007

You don't read well, do you???

Stop the reinterpretations of other peoples post! 

The Item 20 that you want is impossible to measure since it requires knowing why exactly each and every transfer occured which is UNKNOWABLE.  

Posted by The glass is... on March 3rd, 2007