Humility lessons come in many forms

November 10, 2010

Bankruptcy is one of them.

Saw my dentist yesterday. Evelyn says I clench my teeth too much and that her daughter’s boyfriend wants to buy a coffee franchise.

I said I would not stand in the way of anyone developing their capacity for humility

It worked, perfectly, for me.

Personal investments you Keep after Bankruptcy

July 29, 2008

You should talk to your financial adviser about arranging your retirement or other investment funds to try to put them beyond the reach of debtors in the event of your franchise going bankrupt.

  • Some investments survive a bankruptcy (ie. you get to keep them even if/when you hit the wall) and others do not. God is in the details on this one kids. This is a very jurisdiction-specific comment.

I know you plan to be the next billionaire franchisee but you should get solid legal advice (from a bankruptcy attorney because I am not a lawyer) where you live before you sign anything.

This is a good idea to look into this if you’re already a franchisee, too.

This goes for your partner, as well. Most franchise relationships try really hard to have your spouse co-sign. [They may be after your net worth too. Do not, soft-headedly, loan hubby more of what the industry calls: love money.]

Three rules about a spouse signing any franchise document [agreement, bank debt, etc.]:

  1. Don’t do it, ladies,
  2. Don’t do it, ladies, and
  3. Don’t do it, ladies.

Oz banker writes off its own franchisees’ loans

July 14, 2008

An interesting development with the Bank of Queensland. I haven’t ever seen this type of franchisor debt cancellation before.

The Financial Standard of Australia reports today that BOQ writes off franchise loans.

Of 55 owner-managed branches in New South Wales for BOQ, most have been trading for only three years or less. More than three-quarters of the BOQ franchises set up in Sydney over the last three years are failing to meet business targets.

Normally the costs are very high when a franchised business fails: personal and corporate bankruptcy for the investor.

Owners of BOQ outlets in Sydney often walk away from their businesses. The owners of the Kellyville and Rhodes franchises are two to have done so in the last two weeks.

That is not happening here.

When an owner of a franchise opts to walk away from the business (and its continuing losses) BOQ invariably employs the staff directly in order to keep the branch open.

In a number of cases BOQ has also hired the former franchisee as branch manager, a situation that appears to include relief from at least some of their liabilities to the bank as part of a package deal.

I believe there are several solid reasons for this very unusual banker charity:

  • the business model clearly does not work, everywhere making it difficult to scapegoat any individuals,
  • the financing was almost 100% by the bank itself [a few conflicts of interest: duty as lender, duty as employer, self-regulated operator],
  • banks are extremely sensitive about charges of bullying or loan pushing and do not want to be dragged in as Exhibit A in the upcoming national government inquiry,
  • these former franchisees seem very savvy [national media, threats of collective legal action], and
  • maybe a few of these banker-now-franchisees-now-banker remember the intricate details of franchise financing [ie. they know where the BOQ buried their franchise dead].

As I always say, whenever you get a chance, complain to self-regulatory authorities and sue the professionals [lawyers, bankers, accountants, appraisers]. Double that sentiment when you can threaten to put dozens of pissed-off whistleblowing industry insiders on the stand within a massive a civil lawsuit.

  • I bet the newly re-employed bankers actually got a bump in pay and some much needed job security. Better security that the bozo BOQ execs who took the doofus idea of franchising branch services: hook, line and stupid sinker.

These are just like Canadian professionals.

Tell you what: I’ll let the kids carry on at university while T and I emigrate. Let me find out where the washrooms are [a little draw] and let me keep, say, 5% of all settlements. Heck, start passing the hat.

Les Stewart :: Ace Bounty Hunter

BTW: This article shows how much franchisor:franchisee relationships are very much like employer:employee relationships.

In fact, some franchise contracts have been seen to be so controlling of the franchisee’s business that the relationship was judged to fall within labour law. In other words, the franchise was seen for what it is: the veneer of an independent business with all relevant control given over to a dominant party.

  • The most recent situation was the Coverall system and the Supreme Court of Massachusetts, USA [see Michael Webster’s Are Franchisees really Employees? on Blue MauMau].
  • Webster has a particularly deep understanding of both franchise, business opportunity and labour law.

I think this is very fertile soil for getting money back. Complain to labour boards saying franchisors are just trying to evade duties as an employer. The janitorial cleaning segment is notorious for having microscopic control over their faux investors

I bet a clever banker could make the same argument because of the complexity, huge information investments needed and memberships in affinity programs such as Visa, MasterCard.

I wonder how much lending the Bank of Queensland does for other franchise systems and if this is what they really want to protect from scrutiny?

  • In 1998, I was told by the head of franchise banking for the Royal Bank of Canada that franchising is the most lucrative form of commercial lending there is. Period.

No question: guaranteed loans at prime +3% v. prime or less for mortgages.

In Praise of Bankruptcy protection

June 29, 2008

My 2001 personal and corporate bankruptcy was substantially pre-ordained the moment I signed the franchise agreement in 1998.

It was wishful thinking that I could be profitable as a Mom-and-Pop operator when I got hooked up with, what turned out to be (see hindsight bias) a system that didn’t have a proven business model. I kept putting more and more time and money in (sunk costs) believing I could turn the corner.

Michael Kernaghan of the Weed Man was right: I didn’t have enough money to grow the business quickly enough to be sustainable.

Once in the soup, I created an internal fallacy or illusion. It was fueled in part with my increasing attachment to the money I had lost (loss aversion) which is usually 2 times as powerful as the desire for a comparable economic gain (prospect theory).

It was very difficult to square this failure with the frequent successes I had had in my life up to the at time (cognitive dissonance). And the franchisor could always be counted on to counsel perseverance and asking relatives for more money.

  • Very Large Note: I had no flipping clue (at the time) that I was in a very real way acting in a delusional way. I thought I was being perfectly rational. I had did not know I had Drunk the Kool-Aid so badly. (Most other cult members don’t think so, either.

Whether a system is predatory or incompetent, it does not matter: The investor will lose it all, in all likelihood. The only difference will be the style you exit with.


Of the tens of thousands of dollars I have spent on professional advice, the most useful franchise expenditure was with my Bankruptcy Trustee.

He once mentioned that the average indebtedness of a client was $25,000.

My former franchisor realized less than seven per cent (7%) of their claim on my business’s disposal. That was no surprise to a 1,800 franchisee multi-brand international corporations.


  1. I believed I could turn early losses around by working harder and investing more. I was wrong (see pride). Perversely enough, the harder you work, the more you become attached to being a franchisee. It works like a Boy Scout knot that tightens as you struggle with it.
  2. I went 3 to 4 years too long. They call it “protection” under federal law for a very good reason. I was over-optimistic.
  3. Bankruptcy was the best business decision possible.
  4. The manner in which I bailed was important to me (no credit card debt, only the likely suspects got burned).
  5. My spouse never signed anythingever. (Everyone notice this?)
  6. My retirement savings were with a life insurance company which, for me, proved to be beyond the reach of bankruptcy law. (Talk to your financial advisor about protecting yourself before investigating anything.)
  7. Going independent delayed the inevitable and it allowed me to acquire the start of my franchising education.
  8. Financial counselling before I actually declared bankruptcy (ie advice in helping to decide) from a Trustee in Bankruptcy was the 2nd best money I ever spent.
  9. Bankruptcy’s stigma (acting through the human emotion of shame) kept me going. I thought that if I was going down, I may as well learn as much as I could about franchising as I went.
  10. Industry insiders told me stuff that they never imagined I would using in 10 years. Everyone cuts a deal, signs a gag order and exits feeling it was mostly their fault.
  11. I got hooked on learning how this trap is laid, especially the psychology that makes a franchisee seem to so comprehensively collaborate in their own imprisonment (thought reform).

Credit counselling is a part of the process of being a first-time bankrupt. It went pretty smoothly for me.

When my counsellor said, “What lessons have you learned, Les?” and I replied: “Don’t buy another franchise?“, the questions stopped.

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