Risky Business: You Fall when your franchisor fails

Running a franchise is like walking a tightrope at the best of times. When the franchisor hits the wall, it’s as if the world doesn’t make sense anymore.

Your supports are gone, in an instant: a senseless act of economic violence.

A recent Wall Street Journal article by Richard Gibson presents 3 not all that helpful suggestions, 1 hypothetical worthwhile observation, and 0 FranchiseLand reality checks (see Be Prepared in Case Your Franchiser Falls).

The 3 next-to-impossible alternatives are:

1. rebrand to another franchise system (technically possible at any time but legally difficult to do, 99.9% of the time stupid to do while in a crisis, expensive, may increase aggregate and long-term risks),
2. go independent (the franchisor’s difficulty does NOT free you it only transfers your obligations to another party, raises false hope, breeds moronic thinking and inertia), and
3. advertise to your customers that you’re still alive (yes: the best of the 3 but, still, a thin stew).

The best part is the value of a well-functioning, prepared independent franchisee association (IndFA).

• However, all IndFAs are not the same.

Only invest in a franchise that has an IndFA with the following 3 characteristics:

1. a “rainy day” account of a minimum of $25,000 to take immediate legal action,
2. a two-year track record of collecting monthly fees from 75% of the franchisee members (you do not buy house insurance as the first responders are driving up to your curb), and
3. 50% plus 1 of those contributing franchisees have signed an agreement that they will contribute (loan, add equity) over-and-above the monthly commitment when asked.

Contingency planning is the main reason for an IndFA’s existence.

• Saying an individual mom and pop franchisee can do effective planning is just plain cruel. They have neither the financial nor conceptual horsepower to do anything knee-jerk reactions. Most of time, it’s Bambi-in-the-headlights time.

Unfortunately, these 3 IndFA points are 99% irrelevant because 99% of franchise systems do NOT have an IndFA that meets these 3 characteristics.

In the real world…When the franchisor fails you do too unless you have the $ and cahones to take immediate action. Only then can you overcome the law of gravity.

Remember: If it doesn’t jingle, It doesn’t count.

Symbols: Strength through Unity

Michael Webster over at Misleading Advertising Law picked up on my recent posting: Franchising is the latest Big Con.

I absolutely agree with him: the best defense against post franchisor opportunism is a well-funded, professionally managed independent franchisee association, IndFA.

There is no substitute for collective action and only a fool thinks otherwise.

The power of “sticking together” has historically been represented by rods that are bound together, often with an axe in the middle (fasces: from the Latin meaning “bundle”). The English word fascist is also derived from this root.

• In ancient Rome, the bodyguards of magistrates carried fasces and it came to symbolize authority. On early American coins, the fasces symbolizes the unity of the colonies, strength in numbers (A single stick may be broken, but a number of sticks bound together are invincible).

Fasces show up on seals (state of Colorado, two of them crossed on the seal of the U.S. Senate, the Knights of Columbus, {above), the Administrative Office of the United States Courts, and the fascist party under Benito Mussolini.

United States of AUS: McTurkeys come to their Senses

Late breaking AUS Franchise news via Blue MauMau.

The International Franchise Association, IFA has instructed the Commonwealth of Australia on which laws they should and should not have.

McTurkeys instinctively renounced their citizenship and assumed the posture most likely to please Big Franchising‘s head office.

In a predictably subtle grasp of international and constitutional legal matters, an unnamed IFA source is quoted in an article called Washington Trade Lobbyist Warns Against Changing Australian Franchise Law), that:

The International Franchise Association, a Washington D.C.-based lobbying group representing mainly franchisors, is warning Australian parliamentarians debating a tightening of the country’s franchise laws that laws requiring registration of franchisor disclosure documents are outdated and burdensome. The organization also warns that recent removal of foreign franchisor exemption will dampen U.S. firms’ interest to expand into Australia.

The IFA, which represents less than 1/3 of U.S. franchise systems, came out firmly in favour of a disclosure regime.

In a related story, when reached for comment on the fact that

1. the IFA had taken over her law-making authority, and
2. her former colony would henceforth be called the United States of Australia,

Elizabeth II, the nominal head of state and Sovereign of Australia responded with her characteristic degree of pith:

…whatever.

Les Stewart: Air Force brat

I was born in 1959 on a Royal Canadian Air Force radar station, CFB Sennetere, Quebec where my dad was stationed. He was a Chief Warrant Officer and made 22 Atlantic ocean crossings during WWII. They gave him an Atlantic Star medal and a gun as the ship’s purser.

Dad retired at CFB Borden in 1961 because it was close to his hometown of Paris, Ontario and my mom’s Ukaranian relatives in Toronto. The service was very good for men who came of age in the Great Depression.

I guess it is unusual for a non-commissioned air force officer to be given a navy medal. He prepared flight crews in Canada under the British Commonwealth Air Training Plan. My Dad trained commonwealth flight crews in Canada and brought them over to England.

The British Commonwealth Air Training Plan Agreement, between Canada, the United Kingdom, Australia and New Zealand was signed in Ottawa on December 17, 1939.

My mom was in the RCAF Women’s Division a corporal and a teletype operator in London, England during the war. She enlisted because it seemed much more exciting than farming the 1,000 acres of her father’s wheat farm in Ste. Agathe, Manitoba. My Uncle Jerry was lucky: he was old enough to work in Poland during the war. Just the forearm tattoos. I never got a chance to know Dad’s brother Neil.

My oldest brother was in the Canadian military for over twenty years. He retired as a major after graduating from the Royal Military College of Canada, RMC and Purdue University. Keith wore an iron ring. Gary, next in line, spent a short time at Royal Roads.

History sometimes helps people put things in perspective. People may conclude that I am some type of hairy-assed anarchist. Nothing could be further from the truth.

I understand the concept of duty, the difference between an officer and an office and how an oath trumps and defines a lawful command. There is only honour when authority is exercised in a responsible way. The rest of the fake militarism and bullshit patriotism is for the soft-headed and gullible.

Business, especially big business, is now organized like an army. It is, as some would say, a sort of mild militarism without bloodshed; as I say, a militarism without the military virtues. G.K. Chesterton

Motto: per ardua ad astra, “Through Struggle to the Stars”

Ponzi scheme unwinds in Real Time on Blue MauMau

Interesting times over at Blue MauMau for franchisor Dale Nabors of Cuppy’s Coffee and More as he responds to allegations of running a Ponzi fraud (see Cuppy’s Speaks Out on Accusations, SBT, AAFD and More).

Janet Sparks is one of the most experienced and knowledgable franchise journalists there is. Period. She is a real professional that is not afraid of many of the things that go bump-in-the franchise night.

I think it is the best if Mr. Nabors speaks for himself and I would encourage everyone to read this whole story:

“I’m putting money into the company, and the company is putting money into the projects. In a roundabout way I guess it’s fair to say yes, I am putting money into the company to cover some of these projects. But these are very few projects.”

In a posting entitled Cuppy’s Fraud, Michael Webster (see Misleading Advertising Law) responds in a blunt and  thoroughly unCanadian fashion:

• When Nabors says “he was having to put capital into the businesses to keep them moving forward, and some of those monies in turn are used for construction and build out. He said there had been projects that monies were paid on and those monies went into a general operating account and were not used specific for a project.” this is an admission of fraud.

Webster goes on:

You cannot take money borrowed by A to pay off building out B, although you can certainly count on the support of B when that happens or is promised to happen.

This is not a construction company pretending to be a franchise company.

This is a construction ponzi scheme, taking funds from later investors, paying off earlier investors, pretending to be a franchise company.

These related entities are insolvent and the creditors need to shut this mess down immediately, appoint a receiver and come to an equitable solution.

Nabors call for more time is the typical whine of a ponzi operator. [my emphasis and format]

His allegations are numerous, serious and very interesting. Take a close look. I have worked with Michael Webster for several years. He is a very careful person, a skilled litigator and fraud investigator. The last guy I’d want to oppose in a biz op or franchise swindle, if I were so inclined.

BusinessWeek franchising article

Please find the current Special Report on Franchising. I am quoted in the article Is It Time to Buy a buy Franchise?

“If any promise is made, you should have it in writing, and if you put it in writing and it isn’t included in a franchise agreement, you should assume you are dealing with a liar and a scoundrel,” says Stewart.

Further…

But he suggests that a majority of the new offerings being marketed are “non-sustainable,” and that the number is greater than in the past.

“These fly-by-night systems come in to the market because people allow them. They buy them and they think it’s just like McDonald’s.”

There is also a slideshow called Franchising Experts Weigh In. I’m the last guy [far right] with the red face on holiday.

“If you really have no experience in an industry, like collecting dog poop, then you should work there [first]. You need to understand what that potential franchisee is going through.”