Franchisors play the role of the false target

November 25, 2010

Identify the real protagonist, the Fixers.

And those that rent money.

The surest sign of a dying empire is when a franchisor starts  self-financing when new franchisees had traditionally used a regulated lender.

Very high dangers of private, unregulated lending (prime plus 5%). Same as loan sharking.

Your house is the real asset at risk, not some phantom idea that you have equity.

See Champions of Tyranny What will the grocers say?


Affordable, early and non-court dispute resolution: The identity already exists

November 1, 2010

In 1998, I was asked to create a corporate identity (see letter).

The purpose was to move from a temporary working group, chaired by the Ontario government (Franchise Sector Working Team, 1996-2000?)…

…to a permanent mediation function (non-court dispute resolution process)…

..that would be housed within a national, franchisee/franchisor/banking sector run self-regulatory agency:

  • National Franchise Council of Canada.

And here.

This never got off the ground for several reasons. But it was not for the lack of franchisee effort. The Canadian Alliance of Franchise Operators stopped in 2005 (lack of revenue).

After 11 years, the need has never been greater.

There is, until now, no economic market to  support it..

If you lost your money, Call your franchise banker.

October 27, 2010

Get smart.

Who do you think teaches new franchisors or amateurs like David Scenna (Hookers and Booze: Your tax dollars at work) franchise money management?


Your franchisor is nothing much more than a rodeo clown.

  • The brains behind the outfit are the franchise bankers. Only a fraction of the government loan losses are claimed because accurate reporting would queer the deal. They self-finance the used franchises via compliant equipment appraisers on the front end and their captured bank receivers on the other (exit franchisee into bankruptcy.
  • See 2005 details.
  • Crapola franchises.

Last time I checked, +80% of Canada Small Business Financing program loans were done via these people below. Why not give them a call and ask them for a 10 minute interview?

Bank of Nova Scotia
Mr. John Dykeman
Ms. Irene Thomson
National Franchise Programs
Phone: (877) 252-6088 Toll Free

BMO Bank of Montreal
Mr. Steve Iskierski
Senior Manager, National Franchising Services
Phone: (416)927-6026 / (877)629-6262

Canadian Imperial Bank of Commerce, CIBC
Mr. Charles Scrivener
Director & Head, CIBC Packaged Loans Group
Phone: (416) 980-3225

Royal Bank of Canada
Mr. Paul DaSilva
National Franchise Market
Phone: (416) 974-8299

TD Canada Trust
Ms. Irene Law
National Manager, Franchise Banking
Phone: (866) 871-2178 / (416) 307-9270

Source of contact information

Franchise lenders are swill

June 17, 2010

Some systems hardly have any franchisee debt.

This is particularly true of ones that converted employees to franchisees.

That changes once franchisors listen to their bankers explain how much they both can make (ie. interest kickbacks) if they leverage as many franchisees to the teats.

The primary control method of newer (maybe more formally educated?) franchisees is debt. Hundreds of thousands of supportable debt, if the franchisor who controls their gross margins, lets them service their debt.

It’s ugly:

  1. prime plus 5% (“love to give a better rate but it’s unsecured, don’t you know“),
  2. immediately callable (demand loan = short leash),
  3. plus personal guarantees up the wazzo (“just need the missus to okay the paperwork…“), but
  4. secured by NOTHING but the franchisor”s “good faith” (ok as long as the present management stays put but all deals are off if…).

If you want to unlock the chains, start asking your “preferred” lender some questions (on a public blog, btw) about their lending duty under the Bank Act.

Franchise bankers: a breed apart.

A little more sensitive than you run-of-the-mill doofus franchisor: don’t like being fingered for loan pushing, collusion or predatory franchise lending.

Card scammers lift ++$50 million from AUS McDonald’s customers

January 21, 2010

Reports coming of large scale debit card scams from October 2009.

Banks are not required to report fraud occurrences publicly.

Watch the video

News item: January 20, 2010, Maccas EFTPOS scam

An international crime gang is targeting fast food stores in Queensland, stealing EFTPOS terminals and cleaning out accounts.

Quote from a cop:

Happy days for the crook and sad days for the victim.

Other Austrialian news reports:

1. Bank blocks 10,000 banking cards after EFTPOS scam revealed

A McDonald’s spokeswoman remained tight-lipped about how many of its EFTPOS machines had been compromised.

“We can’t discuss any details of the investigation,” she said yesterday.

A security upgrade of McDonald’s EFTPOS terminals across the country had been completed the week before Christmas, she said.

The upgrade followed attacks on McDonald’s outlets in Perth last year.

2. EFTPOS scam reports ‘disturbing’: Rudd, Prime Minister Kevin Rudd has described reports of a nationwide credit card skimming scam as “highly disturbing”.

NSW Police say every Australian capital city and some regional centres have been hit by the scam, which has netted more than $50 million in NSW alone.

Six people have been arrested in NSW in relation to the scam, which police say involves criminals committing armed robberies to get hold of EFTPOS machines.

3. Crims rip off $50m in Eftpos scam

Fraud squad investigators say the criminals have ripped off Australian cardholders for at least $50 million.

NSW Police Strike Force Wigg told the Daily Telegraph that 50 members of an Asian-based criminal gang had been identified as “persons of interest”.

Detectives say the skimmers were mostly operating in all capital cities and in major rural centres.

Franchising more than helps flush +$100 million CDN annually down the toilet

January 4, 2010

A good Canadian Press article called Ottawa’s loan program for small business still troubled: report by Dean Beeby.The revenue paid to Industry Canada was supposed to cover the default claims paid out, but the math has never worked in Ottawa’s favour.

Claims paid out have risen steadily over the decade, and now top $100 million annually, while revenues have consistently lagged, costing taxpayers a net $335 million so far.

Put another way, cost recovery is currently at only about 60 per cent rather than the 100 per cent that was planned, and is in steady decline.

“The gap between claims and fee revenues will continue to exist and most likely expand,” predicts the KPMG report, dated Oct. 30 and obtained by The Canadian Press under the Access to Information Act.

The program’s portfolio of loans has become ever more risky over the decade, now catering especially to newly established small firms with weak credit scores and little collateral, many in the food-and-beverage sector.

These loans are used extensively in franchising although the franchise bankers frequently don’t even bother to try to register or make a claim on the phantom loans. The difference between new and used equipment nicely covers the money split between the mob (see here for details).

I’ve kept a close eye on the Canada Small Business Financing program and how the franchise industry misuses it (see my 2005 paper called Franchising Opportunism)

Program results from 1999 to 2008 using Industry Canada’s own Annual Reports (franchised v. non-franchised loans):

  • Franchise Loan Claim Rate was 26.5% higher (than for Non-franchised loans).
  • Franchise Loan Default Rates resulted in over $22.9-million more Claims (Non-franchised rate).
  • The mean Franchised loan was 43.4% higher than Non-Franchised.
  • The mean Franchised claim was 11.9% higher than Non-Franchised.

Comparing the years 2008 to 1999:

  • The Claim Rate increased 858.2 times for Franchised (245.1  times for Non-franchised loans).
  • The Franchised Claim Rate accelerated 3.5 times more than Non-franchised loans.

I’d be happy to send anyone the spreadsheet.

The U.S. Small Business Administration’s 7a. loan program seems to be sticking their citizens with a $70-83-billion public debt, too.

Franchisors starve while industry rag sharpens the axe spin

April 9, 2009

Might consider not putting your neck on the block this Easter.headlesschicken1McChicken (not eggs) are on the menu this season to an increasingly desperate selling machine.

An interesting article from Franchise Times this month, entitled: Tight credit is turning franchisors into lenders.

It almost makes sense blaming the credit crisis for making selling new outlets next-to impossible.

It has the almost-true ring to it, don’t it?

I agree that new franchise sales are in the dumpster and that the normal financing sources such as the SBA 7a loans and Canada Small Business Financing program have absolutely collapsed.

However, I believe that attributing it to the credit crisis is a huge misrepresentation

I figure the 7a and CSBF program loans have stopped because of the discovery of widespread fraud as defined by predatory franchise lending.

Notice how the industry media, franchisors, lawyers, lenders and consultants seem to speak as if they were one? Funny how they act as if they’re a group or one big happy family (less the franchisee), isn’t it?

This is why these are the business risks I coded when I sucked this article in

  1. Able to finance and sell negative cash flow franchise on crooked appraisals,
  2. Any excuse may satisfy a friendly editor,
  3. Appraisals grotesquely inflated,
  4. Appraiser and lender has cozy, repeat-business relationship,
  5. Bankrupt is bankrupt whether you put $1 or $1 million in at first,
  6. Buying an existing outlet even riskier than a new one,
  7. Churning (serial reselling),
  8. Desperate to sell any franchise for any price,
  9. Do the old franchisees get the same deal as the new ones?,
  10. Easy credit fuels worthless system sales,
  11. Even the “cheapest” will drain your past, present & future earnings,
  12. Excuse du jour, tight credit,
  13. False assumptions, multiple,
  14. Fee reduction always has a catch,
  15. Franchise bubble will crash much harder (non-franchised),
  16. Franchisor association public relations machine,
  17. Franchisor financing: faster in, out & resold (serial bankrupts),
  18. Franchisor guarantees franchisee debt,
  19. Franchisor picks up stores for a song,
  20. Franchisor takes franchisee store, resells to new dealer,
  21. Franchisor takes franchisee stores,
  22. Franchisor takes store and converts to corporate,
  23. Fraud financed by rigged appraisals used equipment & leaseholds,
  24. Higher short-term ROI to franchisor when churned (versus royalties),
  25. How much cash you put in at 1st is irrelevant,
  26. Kleenex system: tradename born to die quickly,
  27. Lending is subject to expert fraud because it is a credence good service,
  28. Lending duty never enforced via regulation or litigation,
  29. Loan servicers and brokers attracts fraud,
  30. Misrepresentations,
  31. Most lucrative form of commercial lending, franchising,
  32. Only one side presented,
  33. Ponzi (pyramid) scheme,
  34. Predatory franchise lending,
  35. Predatory franchising makes more money selling than operating system,
  36. Press release dressed up like journalism,
  37. Propaganda, thought-terminating cliches, The Big Lie,
  38. Reputation damage masked by confidentiality agreements,
  39. SBA 7a loans used to fuel franchise bubble,
  40. Selling price inflated by easy credit bubble,
  41. Sincerity,
  42. Sold for as much as much as they can get (next-to worthless),
  43. Sold only to people with no small business experience (very naïve),
  44. Spouse can sue for losses also,
  45. Spouse dragged into negative investment,
  46. Spouse must never sign any document,
  47. System designed to fail for franchisees

I don’t mind lies but I do dislike inaccuracies.

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