Franchise gag orders are CRITICAL to maintaining abusive commercial relationships.

January 25, 2020

Between the franchisee and family versus the franchisor’s and franchisee’s lawyer, franchise banker (especially predatory lending), landlords, and suppliers.

Non-disc;losure contracts make a mockery of pre-sale due diligence by prospective franchisees.

Creates inevitable fraud by exiting franchisee.

Disclosure: I’ve never signed one.


Want to talk about your experiences as a Kahala franchisee since 2013?

May 12, 2016

Contact me.Kahala Brands

Kahala Brands:

  1. America’s Taco Shop
  2. Blimpie
  3. Cereality
  4. Cold Stone Creamery
  5. Frullati Cafe & Bakery
  6. Great Steak
  7. Johnnie’s New York Pizzeria
  8. Kahala Coffee Traders
  9. Maui Wowi Hawaiian
  10. NRgize Lifestyle Cafe
  11. Planet Smoothie
  12. Pinkberry
  13. Ranch1
  14. Rollerz
  15. Samurai Sam’s Teriyaki Grill
  16. Surf City Squeeze
  17. Taco Time
  18. Tasti D-Lite

Multi-unit and mom-and-pops. On or off the record.

Les: 705 737-4635. les.j.stewart-at-gmail.com


How many of the 25,000 Syrian refugees will become cannon fodder to the franchise industry via government guaranteed liar loans?

December 29, 2015

Several thousand, I’d imagine.

20151229 Syria cannon fodder1

How? The moral hazard-riddled, Canada Small Business Financing Program.

Details:

 

 

 


Opportunity Knocks and Liars’ Loans: required reading to understand modern franchising

September 1, 2012

John Lorinc wrote the book on franchising from a franchisee’s investor viewpoint.

I’m glad to see it is still available to buy online and is in many Canadian libraries.

The hidden banking side is revealed in Chapter 4, The 90% Solution: Franchise Economics, some of which I excerpted in a WikiFranchise.org post.

What did the business press have to say about Lorinc’s work?:

  1. National PostOpportunity Knocks: The Truth about Canada’s Franchise Industry, is an impressively researched look at the myriad of franchises that mushroomed across the country in the past decade. An award-winning magazine journalist, Lorinc has produced an engaging account that charts both the spectacular successes of some franchisers and the utter failure of some franchisees. How franchises seduce those with the most to lose, Jennifer Lanthier, November 2, 1997
  2. Globe and Mail: At its worst, Lorinc says, franchising is a haven for the unscrupulous who prey on the unwary – typically recent immigrants willing to labour long hours in dreary businesses, unaware that those operations have little chance of prospering – using them as pawns in a shadowy real estate game. Rather than reflecting an insatiable consumer demand, he inquires acidly, is it possible that all those new doughnut shops may reflect a quiet understanding between landlords and franchisors that the best way to fill fallow commercial property is to sell franchises to credulous investors? Franchise book of interest to anyone who pays taxes, Ann Finlayson, November 1, 1997

Finlayson strikes a cautionary note, specifically about the hinted at misuse of the Canada Small Business Financing programCSBFP:

Does all this matter to you? Yes, it does. In 1993, in the wake of vigorous complaints by small-business owners that Canadian banks were reluctant to finance them, Ottawa raised the ceiling on loans guaranteed by the Small Business Loans Administration to $250,000 and its guarantee rate from 85 per cent to 90 per cent, sparking a bank lending rush to franchisees and shifting the risk of franchise investments onto taxpayers’ (your) shoulders.

The Risk: Only a fraction of the Liars’ Loans are ever claimed by the banks, thereby grossly understating Industry Canada’s default statistics (Franchised v. Non-Franchised loan performance). The franchisee thinks he signed a government-backed loan but it never gets registered as such. As their bankruptcy, loss of life savings, marital and family breakdown escalate over the life of their 12 to 18 month franchise career, the franchisee NEVER looks to Box 9 of the CSBFP loan application form (Projected Sales ) as the source of their trouble; where the lie is put into the “Liars’ Loan”. The proceeds of these engineered-to-fail loans is split upfront by the franchise banker with the bank, banker, franchisor and sales agent. If questioned, the bank shreds the paperwork and waits for the lawsuit.

And, seriously, how many of these Immigrants as prey losers could or would ever sue a Schedule 1 chartered bank?

The Return: Smashing quarterly earnings goals, record profits, high turnover in the small business division of each of the banks, and making franchise lending the most lucrative form of commercial lending in Canada. Private gain/public loss enabled by a criminogenic environment, moral hazard, regulatory capture…

Lorinc carefully mentions the “windfall profits” in this arrangement of churning:

What’s more, some banks and franchisors have put the SBLA program [predecessor government guaranteed loan program] to questionable use during foreclosure actions against franchisees, says one former owner who has been through the process. When a bank calls a loan against a non-performing franchisee, the 90% guarantee effectively relieves the bank’s receiver from trying to get the best possible value while disposing of the owner’s assets. With most of the loan covered by the Canadian taxpayer, the assets – fixtures, kitchen equipment, inventory, etc. – can be sold quickly at a deep discount, possibly below market value. This allows the franchisor too step in and buy back the property at better-than-firesale prices, thus generating windfall profit when the store is later re-sold to another franchisee.

An important work that, depressingly, is as relevant in 2012 as it was in 1995.

______

Disclosure: My lol pecuniary interest here and here.


Could franchise bankers also act as gangsters?

July 10, 2012

Are Canadian franchise bankers capable of engaging in “cartel-style anticompetitive corruption” in their $100-billion sales per year marketplace?

Every current or former Canadian franchisee who has had a Canada Small Business Financing loan may want to ask themselves some questions. My posts at  FranchiseBanker.ca (specifically: Banker “everybody is doing it” corruption admitted in the LIBOR scandal) might help frame your thoughts.

Without the Canada Small Business Financing program, many fewer deadbeat franchises would have been sold in the last 20 years.

Industry Canada asked me to jot down my concerns a few years ago.

Franchising Opportunism, a 20 page non-technical paper,  was the result.


My project work in franchising

April 28, 2011

There was no map or rule book in testing the limits of the industry.

By nature, these were all unreasonable actions from the conventional viewpoint.

To me, they were just taking one step ahead of the other.

Not bad.

[At Play]


Are franchise bankers running a peep-show, a clip joint?

January 31, 2011

Franchising is low-grade entrepreneurial pornography.

Read Franchising Opportunism and you judge. The horrendous losses on unregistered guaranteed government loans are self-financed on inflated appraisals.

A clip joint or fleshpot is an establishment, usually a strip club or entertainment bar, typically one claiming to offer adult entertainment or bottle service, in which customers are tricked into paying money and receive poor goods or services, or none, in return.

Typically, clip joints suggest the possibility of sex, charge excessively high prices for watered-down drinks, and then eject customers when they become unwilling or unable to spend more money. The product or service may be illicit, offering the victim no recourse through official or legal channels. Wikipedia

The process by which banks create money is so simple that the mind is repelled. John Kenneth Galbraith

See Canada Small Business Financing Program and U.S. SBA 7a Loans [and UK and France and…]


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.


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.


If we forget, We will continue to repeat our mistakes

August 4, 2009

WikidFranchise.orgWe created WikiFranchise.org to house the documents that I have collected and to start a dialogue.

A wiki‘s strength is in its volunteer editors.

Time will tell whether other people find this franchise industry-only indexed archive useful.

It has some merit for teaching and learning about the business risks that sometimes run counter to the overwhelming advertising message to say “yes” to every half-baked concept.

The latest, saddest example I added to WikidFranchise today is from the Washington Times’s Elise Anderson, entitled: Jobless seek future in franchising.

As Elizabeth Winterhalter and her husband, Monte, packed up their house in Glastonbury, Conn., for their move to McLean, they were eager and anxious about trading the pain of unemployment for the promise and peril of something they had never tried before — running a franchise.

Good grief.

I wish the Winterhalter, Dillen, and Prioleau families all the very best as a personal and financial outcome but I hope Ms. Anderson follows up with them in 6 or 12 months. As for the expert that Anderson solely relies on?: Alisa Harrison has been with the franchise industry for a total of 1 1/2 years.

Banks won’t do Franchise loans: It is true that there are no normal or even government-subsidized (SBA) loans to be had now.

The reason: an emerging crisis that implicates the 7(a) Loan program of the U.S. Small Business Administration which has a long and consistently scandalous history.

Predatory franchise loans are becoming visible to everyone: loan brokers, banks, re-packagers and politicians. The public bailout of the franchise industry’s greed is what is freezing everyone in their tracks: not a recession. Pending fraud indictments tend to chill even the shadiest franchising financing scam.

Estimates of a public bailout of $70 to 80-billion will seem quaint if an accurate, non-biased accounting were to ever take place.

Don’t expect to see any breaking news stories about this on Franchise-Chat.com or BlueMauMau.org either: these off-message stories are skimmed off before they hit any franchise RSS feed. Keep the kids busy talking about the evil empires (MBE, Quiznos) or arbitration reform or how franchisees are to blame.

What I do: I took the article, coded it and saved it in WikidFranchise. Here are the business risks I assigned to it:

  1. Cannon fodder,
  2. Desperation causes bad decision making,
  3. False hope,
  4. Financing with 401k money is totally reckless,
  5. International Franchise Association, IFA,
  6. Only one side presented,
  7. Loss Aversion: people dislike losing much more than winning (the same $),
  8. Professional journalistic standards,
  9. Retirement savings gone,
  10. Severance package financing dream,
  11. Sold during time of psychological vulnerability, especially unemployment,
  12. Sold only to people with no small business experience (very naïve),
  13. Success or failure is within the direct control of the individual franchisee,
  14. Unproven business model,
  15. Unskilled and unaware of risks, and
  16. Who pays for the research?

Many families are going through very desperate times and are searching for help.

  • This article is just plain cruel.

I collected the already-published documents to give a sense of history for new investors.

WikiFranchise.org is a revolutionary tool for those willing to use it.


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