New franchise rule: More disclosure, same high risks

From Les Stewart, Ontario, Canada

Excellent article. Very well done.

There is a well-known compliance mechanism called "badges of authority".
What happens is that the logo and perceived, almost sanction of a federal
agency acts as a very powerful tool of persuasion and fraud.

Everyone knows you can sell around any disclosure document.

You are right: the +160 pages are myth-making. There already is to much text
for any human being to absorb: what they take from it is that the federal
government is somehow looking after things.

Honestly now: How many people even with post-graduate degrees in political
science would know that it would take an act of Congress to institute a
private right of action for U.S. franchisees? It's just much easier to
scapegoat the hapless souls that bought the walk.

Also, disclosure only goes so far: It does NOTHING to predict, prevent or
defend against franchisors overreaching once the contract is signed
("exerting their discretion within the incomplete contract in an
opportunistic way").

Thinking you can predict what any business is going to do 5 to 10 years down
the way is foolhardy. The UFOC or FDD does nothing to address that issue.

It is better that the FTC leave its ficticious and increasingly hazardous
role behind. It only brings discredit on the whole government system when it
only prosecutes minnows and lets the marlins continue to wreck havoc.

There are private ways of providing disclosure services and assigning an
accurate reputation for opportunism to each trademark system.

I am working on a reputation mechanism (Information Sharing Project at
lesstewart.wordpress.com) and Michael Webster (bizop.ca) is working on a
disclosure program.

I think these things are revolutionary but I'll leave it to your judgment,
if you like.

From Bob, Trenton, New Jersey

I purchased a SuperCoups Direct Mail franchise. I trusted that a franchise was a good investment and that they had my best interests at heart. New managment stepped in and things went backwards. It is a shame that we have to be locked into a 10 year contract with a company that is completely mismanaged. In addition, they have no interest in staying competitive with their competitors but expect the franchise owners to be competitive against ours. Our product is antiquated and we have no choice but to ride it out.
I would simply start my own business next time and avoid the franchise trappings.

From A. Sukhwani Fairfax, VA

I owned 2 Meineke's with real estate. One I bought and shut down because Meineke wouldn't remove the assignment of Lease. The 2nd one I shut down (didn't renew last year) because the Franchise Agreement had conditions unacceptable me. Assignment of Lease, Payout of Insurance proceeds, no compete clauses for anywhere in the USA even though my locations were in Virginia. Total waste of 8% advertising fees collected from me and other franchisees on things like the Charlotte Bowl, George Foreman and the $12.99 to $14.99 oil changes which also included tire rotation and balance checks etc, etc. Both locations are leased out at market rents.Meineke sent prospective Franchisees to me with the word that they should offer half the going rate in Rent

From YourFranchiseMentor, San Francisco, CA

5 years ago, I bought into Subway, and they talked me into building a brand new store in an expensive downtown location. Even though the rent and the square feet were much higher than the average store, the local area developer speculated (not in writing, of course) that this store would quickly become the highest grossing store in the district.

Wrong.

Sales volume never materialized, and after working my butt off for 3 years, I just sold the store at a loss of $300,000. Will that get reported? No, because the store is still operating "successfully" in the same location.

Isn't this legalized lying?

From Withheld for fear of retaliation.

As a previous Quiznos owner I can tell you that their tactics of verbally providing false earnings claims was/is still rampant. Then when you're signing your life away…they slip that piece of paper in front of you saying "we never made any claims PERIOD!!! Of course by this time you've already given them your franchise fee (25k) plus 50% of the total equipmnet pkg as a deposit (37k). At that point…what are you supposed to do…walk away from 80k and say OH Well?? No, you take what they tell you as "good faith", you do your due diligence as best as you can (talking to other owners, research, etc). I want to see the FTC and our government change the rules to show 2 things:
1) A complete disclosure of first generation franchisees failure rates.
2) Access to units P&l's so that you can really see the true picture.

I have absolutely no faith that our government would entertain either one of these scenarios however. People need to continually approach your states Attorney Generals, Congressional people etc and demand that the Franchise Rule be revised!!! Make a change!!

From franchisefool

More of the wrong type of information is absolutely less useful. The FTC has refused to insist on a private right of action and mandatory earnings disclosure for decades.

It is time for the FTC to get out of the franchise industry, 100%.

Their involvement gives a false sense of security to potential investors. Their logo sanctions widespread wrongdoing.

Leave protecting consumers to private companies that will respond to citizens' and not brand bully needs.

From John Antanies, Tempe, AZ

I looked at a Quiznos franchise. One week poring over the UFOC and calling franhisees who had left the system convinced me it was money losing operation. We have a Quiznos near us that has failed twice.

I became interested in franchising when I met a guy hunting in Africa who owned 10 McDonalds. McDonalds does a super job of providing earnings claims in the UFOC – several years ago, the average McD's owner made over 100K per location.

I own my own business and would recommend to anyone to start your own instead of buying a franchise. Good names get "locked up" almost immediately, meaning new locations are only open to existing franchisees.