I outlined a couple of situations where me and my partner had PROOF of employee theft, what we did to deal with the situation, and what steps we took to prevent future incidents. 

The reporter got me thinking that the best way we have prevented theft, or think we have prevented it) is by getting all of our employees involved in the process.  We actually showed them what the theiving employees had done, so they could be aware of the temptations, and all keep an eye out for suspicious activity. 

We also were MUCH more proactive in measuring daily sales reports and past financial metrics to find anomalies that may be signs of dishonesty.  For instance, when a void occurs at one of our restaurants…and they do unfortunately…we require that the employee AND the manager sign the void slip.  We also have a confidential, but open door policy for any employee to let us know if they didn’t feel good about something that was said or done at one of the stores. 

There are a many other ways to avoid theft…cameras, keystroke monitors, etc, but I believe the best way now-a-days is to try to look someone in the eyes when you hire them.  I believe that this can give you a pretty darn good sense about who they are as a person.  Ask a lot of probing questions, and be very mindful of how they answer them.  The eyes are the window to the soul, it has been said…so try to use that knowledge to your advantage!

Being your own boss is great, but to be honest, you will probably find yourself doing double the work for half the pay…and that is not an exaggeration at all. 

Keep in mind that with a franchise, you are in business for yourself, BUT the Franchisor can and will control how you do business.  For a successful and proven franchise system…this is great.  You get the benefit of their proven money making system! 

For a new franchise company that is still working out the bugs, this can be a nightmare!  They will force you do spend money and do things that they THINK will make you successful.  But often times those things will not work and they are learning their business on YOUR DIME. 

Franchising can be an amazing tool to financial freedom, BUT BE CAUTIONS, becuase there are very few truly good franchise systems out there!

I’ve read through over a hundred of these documents.  Most are hard to understand, at best.  Usually, they are down right confusing and require a highly trained, and highly paid lawyer to tell you what exactly you may be entering into if you buy a franchise.

The practice of requiring this disclosure document was designed to protectperspective franchise buyers from scams, un-proven business models, and fly-by-night franchisors. 

The problem now is that when you sign off stating that you have received and understand this document…and then you sign a franchise agreement…you are almost always signing away may of your rights.  For Example:  Many franchise companies offer Discover Days.  This is when they bring you to their headquarters and tell you how great their concept is and how much money you can make.  They verbally tell you all kinds of stuff.  If you look closely at the FDD that they are providing you, generally you will see that in that document the franchisor disclaims all oral representations made to you. 

Usually, when you sign a franchise agreement, you are required to acknowledge that no verbal representations were made to you…and if there were any made, that you ignored them and made your decision to buy a franchise solely on the information in the Franchise Disclosure Document.  Do you see the problem here?

I mention all this so that you will be careful.  Truly don’t rely on anything that you are verbally told.  If it turns out to not be true, you will probably not have a leg to stand on in court because of all the disclaimers in the FDD and franchise agreement. 

THIS IS NOT THE CASE WITH MANY FRANCHISES.  THINGS CAN ACTUALLY BE MUCH WORSE!

I have seen many franchise agreements that, in the event that you are losing money and must close down, will require you to pay the franchisor up to tens of thousands of dollars of estimated future royalities for up to the life of the franchise agreement.

FOR EXAMPLE:  Lets say you sign a franchise agreement for a small pizza store franchise.  You pay a $20,000 franchise fee, and invest another $180,000 into the building, equipment, and fixtures.  This is a 5 year agreement that you have the option to extend for up to (2) more 5 year periods.

Let’s say that you work hard, but after three years you are unable to operate the business because you are not making enough profits.  You try to sell the business, but you cannot find a buyer.  Your only option is to sell your equipment and fixtures for $25,000. 

You would think that you have just lost $175,000 of your investment…but under your franchise agreement, you could still owe the group who sold you the franchise some more money.

The MINOR DETAIL in many franchise agreements is that if you choose to not operate your franchise for any reason, YOU STILL HAVE TO PAY THE FRANCHISE SYSTEM YOUR AVERAGE ROYALITIES FOR UP TO THE LIFE OF THE AGREEMENT THAT YOU SIGNED.  If you had paid an average of $1500 a month in royalties for three years of the (5) year agreement, you would still owe your franchisor another $36,000 after you have closed.

My point in this discussion is to let you know that YOU MUST READ THE FINE PRINT AND SEEK LEGAL COUNSEL!  It is not enough to simply call other franchisees and ask them how things are going.  It is often in their best interest to tell you all the good, because if you buy a franchise, the system grows, and potentially so does the name recognition of the brand they already own.  Always seek outside counsel and don’t fall in love with a franchise system…there are too many good ones to accept a bad franchise agreement.

Though I love the concept of franchising, there are some flaws. No one teaches you to think 3-4 years down the road. If I ever start my own franchise, I’m going to require franchisees to set aside 1% of their sales as a forced “rainy day fund”. These dollars will only be available if the business reaches certain “red flag” cash flow levels…or every 3 years the franchisee could take 50% of the funds they had put aside if the business was hitting decent numbers. Anyways, I have yet to work out the specifics, but it truly seems like a good idea. I’ve reviewed hundreds of franchises, and I’ve never once seen anything like this mentioned. It would be great if I had done something like this, because when things are temporarily tight in the checkbook, cash can sometimes be hard to come by.

Well, live and learn…and do things better next time!

I have enjoyed and still enjoy very strong franchise relationships. 

I have also been misled and abused by members of the franchise community.

Reflecting on the many franchise agreements that I’ve entered into, I begin to see that this Love/Hate yoyo puts me in a unique position to help people all over the world who are considering signing a franchise agreement. 

I recently ran into some research by a Professor at Wayne State University, Timothy Bates.  In the early 90’s he studied approx. 20,000 business ventures.  His research found that 38% of franchises failed within the first four years. 

I realize that there are 1000’s of bad ways to run a business, and 1000’s of ways to fail…but the above statistic suggests that it is important to take a real hard look at any franchise agreement you are about to enter into. 

It is difficult to blame “franchising” in general for the above failure rates, but I’ve been told many times by franchise sales people about the research showing that 90% of franchises make it past the first year.  No one has ever mentioned the Bates research though.

The journey of providing honest information about the ups and downs of franchising starts today!

Our goal is to help you make a solid, informed decision if you are considering signing a franchise agreement.

I’ve been sold many franchises, most of which have been successful.  But if I had known THEN what I know NOW, I believe I would have avoided MANY problems and challenges along the way. 

PLEASE learn from my experiences, and get all the facts. 

Truly, your future quality of life depends on it, should you decide to become a franchisee!