CURVES: Franchise Resale Complaints, Comments

Our previous post CURVES: Franchise Resale Buyer Alleges Fraud, originally published on the Franchise Pick website, generated some strong comments.  The story was about a Curves owner who purchased an existing franchise club and felt she was defrauded by the seller.  We’ve published them here in their entirety;  feel free to add your own below.

April 2, 2009 Wipedout wrote:

Entrepreneur magazine shows that 940 Curves closed in 2008, from 7,269 to 6,329 still open in the US. That amounts to nearly 13% in just one year.

606 Curves closed in 2007.

2009 is sure to be even uglier for Curves…

Sounds like the owner and her relatives should take this “friend of the family” to court.

April 2, 2009 at 4:10 pm Carol Cross wrote:

Of course, in the resale of franchise units, the burden is on the seller of the franchise to “disclose” to the new buyer and BOTH the buyer and the seller will sign a release to the franchisor, and to each other, as a condition for the franchisor to approve the new franchisee, who will sign a franchise agreement with the franchisors. Resales are usually attractive if their P&L statements suggest to new owners that there is a job and profits and the price is right.

However, If the selling franchisee doesn’t disclose adequately, how can you prove this in the courts when the asset-purchase agreement will probably bear terms that wiull protect the seller from the new buyer and neither the seller nor the buyer have any recourse against the franchisor?

Churning and turning of units in large systems is hard to uncover and those who have been “churned” to great disadvantage want to pass on the problem to the next franchisee and get out from under. If they believe they have been cheated and lied to by the franchisor, or whomever they bought the unit from, they rationalize that this is only fair, etc..

It is my opinion that a resale of a franchise does present better possibilities of doing better due diligence on the deal because you can demand to see the P&L Statements and the Business Tax Statements, etc… as a condition of purchasing the franchise.

As for recourse against the seller, read the terms of the contract. Could the seller be taken to court for “fraudulent inducement to contract” in a State Court if it could be proven that they intentionally misled and cheated the new buyer?

We know the franchisor is protected by public policy and the FTC Rule and the State UFOC/FDD from claims of fraudulent inducement to contract, but what about the owner of a franchise who commits fraud in the resale of the unit. Can the victim get satisfaction in the State Courts? I don’t think so but I’m not an attorney —just an observer of rhe law.

April 3, 2009 at 8:43 am Sean Kelly wrote:

Another lesson of this story is to check your credit card or bank statement carefully each month. Hundreds of women paid $29.00 every month to “merchant” without verifying what the charge was for. Amazing.

April 3, 2009 at 9:43 pm jd wrote:

Sean, there are so many things wrong with how this person went about their due diligence, it’s hard to figure out where to begin. First, if they were making $300-400k a year based on their tax return, the $350k price tag on the franchise was way too low.

Second, not requiring the seller to put at least a piece of the price into escrow is probably a trap that most people fall in to. If a seller has no problem putting a portion into escrow (paid for by the buyer and with some sort of interest on the funds to go to the seller if nothing was wrong), then there is probably a good case that they are being completely honest. Someone that doesn’t agree to this is probably ‘hiding’ something in the sales process.

I’m guessing that the buyer did not review any contracts or the appropriate files, if they knew that some contracts were ‘cancelled’ the price might have been less. Plus, this is something that could’ve been covered in an escrow agreement.

My guess, is that the buyer looked at the tax returns and didn’t do much additional research, and found out too late that the club wasn’t as good as shown. As for fraud, you’d have to prove that they intentionally misrepresented facts, which it sounds like they didn’t.

April 5, 2009 at 1:28 am Wipedout wrote:

I’ve heard one year’s revenue is a good selling price.

April 10, 2009 at 3:18 pm Fayaz Karim says:

Curves resale buyer

It is all about proper due diligence, seller’s disclosures, some seller financing (for insurance), and getting a second opinion from some qualified experts. What an amazing valuation methodology that defies all logic and reference to CASH FLOWS and an assessment of future revenue…….

mrfranchiseman, Franchise Valuations, Due diligence and more buyer services

April 28, 2009 at 12:27 am Wipedout says:

How would the new owner have known the old owner was still billing members who had quit? I think the new owner’s got a good case.

April 30, 2009 at 1:36 pm Curves Owner2 says:

You would think so, but you can’t win a fraud case like this. The seller sold 500 members per club. She was drafting 500 members and bringing in the income for 500 members. The buyer bought the assets. Yes, the seller was drafting deceptively, but it’s not against the law. Id this went to court, a judge would say, “The amount was coming out every month, it’s not the sellers fault, the women should have noticed it.” This is the problem. If there was a law that didn’t allowing drafting in this way, the buyer wouldn’t be in this situation.

May 28, 2009 at 8:46 pm unhappy says:

To all curves owners who have had problems with curves International and Gary Howie Havein please send your complaints to the BBB of your city and Waco TX. As well as the attorney general of your state and TX. And the federal trade commission. Below are web links where you can file the complaints on line.

http://www.bbb.org/

http://waco.bbb.org/WWWRoot/SitePage.aspx?site=40&id=ab5100aa-4c5a-4314-8e1b-f5996973f10c

http://www.oag.state.tx.us/consumer/index.shtml

http://www.ftc.gov/bcp/index.shtml

May 29, 2009 at 7:56 pm unhappy says:

the moral of the story is that even if the frachise is for sale for a buck thats right one losy dollar DON’T GET SUCKERED INTO THIS BUISNESS UNTIL THE CROOK HOWIE IS GONE OR YOU WILL BE VERY SORRY AND BROKE WITH NOTHING LEFT BUT TO FILE A LAWSUIT AGAINST THIS BLANTANT ASSHO—–

June 6, 2009 at 3:39 am Curves Owner 2 says:

Will the lawsuit get rid of Gary, but Curves will go on. If so, should we hold on, in hopes that in due time, we may be able to make the money we need to pay off our debt?

April 7, 2009 at 4:40 pm Curves Owner2 says:

Jd, the seller made $400k profit in the first 2 years of owning the clubs, which means the seller made $200k profit each year, for 2 years. The buyer believed they had purchased 2 clubs with 500 members each, who knew they were paying for their membership. As the buyer in the article states, “When we bought the clubs, we switched from paper drafts to an electronic drafting system. A month later we started getting calls from women who were threatening to sue us for taking money from them without permission. I explained that I was the new owner, that they were still under contract, and based on my knowledge, the previous owner was drafting them when I bought the clubs. They argued with me and said they had cancelled their contracts, and they had not been getting drafted from Curves until we started drafting them. I asked them to bring in a bank statement from any month prior, and the current months statement. When they brought in their statements, we discovered that the previous owners draft was coming out as “Merchant”. They didn’t realize they were being drafted until they saw our “Curves” draft. Over the next 3 months, we had over 300 women cancel in each club.”
I don’t believe any amount of research would have given the buyer access to the fact that the previous owner was drafting these women deceptively. The seller would have had to mention this. Obviously, she didn’t.

June 16, 2009 at 9:33 pm unhappy says:

I wish I had a crystal ball and could answer that question. It has been on many owners mind and we are all hopefull that things will change as most owners love helping women reach their fitness goals. Only time will so if you decided to go on you should at least go to the yahoogroupcurvesowners site as they are a good resorce to help you stay open. Good Luck and God Bless you and your family.

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Read other comments on this story here:

Photo: Bobu.  Licensed by Creative Commons.

CURVES: Franchise Resale Buyer Alleges Fraud

Earlier this year, Curves International Inc. chief executive Gary Heavin, said that high SBA loan defaults were a result of “the overpriced resales of franchises between third parties.”

On an earlier post on Unhappy Franchisee (See CURVES: Disturbing Resale Story), a Curves franchise buyer of two existing clubs provides an example of how a resale business can be artificially, even fraudulently, inflated.  The results can be disastrous for the unsuspecting buyer.

The Curves franchise owner writes:

I am a Curves resale. I bought 2 clubs from a friend of the family, who I thought was a good person. She claimed Curves International told her to base the purchase price of her clubs, on the number of “active” members. When I bought my clubs, an active member was any member who had not canceled their membership. Therefore, the previous owner came up with the purchase price this way, (500 members x 12 months x $29 (plus tax) ~ $175,000 x 2 clubs ~ $350,000).

However, the new franchisee claims that a large percentage of the 1000 supposed members had actually cancelled their memberships and didn’t know their bank accounts were still being charged for their monthly fees.

When we bought the clubs, we switched from paper drafts to an electronic drafting system. A month later we started getting calls from women who were threatening to sue us for taking money from them without permission. I explained that I was the new owner, that they were still under contract, and based on my knowledge, the previous owner was drafting them when I bought the clubs. They argued with me and said they had cancelled their contracts, and they had not been getting drafted from Curves until we started drafting them.

How were 600 women billed for a service they had cancelled without them noticing?  Turns out that the previous owners’ charges appeared on their bank statements simply as “merchant.”  When the new owner switched to an electronic system that identified the charges as “Curves,” all hell broke loose.

I asked them to bring in a bank statement from any month prior, and the current months statement. When they brought in their statements, we discovered that the previous owners draft was coming out as “Merchant”. They didn’t realize they were being drafted until they saw our “Curves” draft. Over the next 3 months, we had over 300 women cancel in each club.

The lesson to be learned?  When doing your due diligence, do thorough and rigorous due diligence… hopefully with the help of a professional who knows these kinds of tricks and nuances, and knows the warning signs.

And keep in mind the wise words of my favorite doctor:

I have heard there are troubles of more than one kind.
Some come from ahead and some come from behind.
Dr. Seuss

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Photo: Bobu.  Licensed by Creative Commons.

Is IT’S JUST LUNCH Dating Service a Scam?

The It’s Just Lunch franchise dating service website calls itself the “the first date specialists,” and claims to “arrange quality lunch dates and drinks after work for busy professionals in a discreet, no-pressure setting.” 

Its claim to fame is the exclusive nature of its high-calibre clients and its extensive, personal matching process.  And it charges big bucks for its dating services.

Is It’s Just Lunch dating service a scam?  If you’ve had experiences with IJL, good or bad, please share them below.

Tami, who claims to be a bikini model, definitely thinks It’s Just Lunch is a scam, and she’s trying to get her $1800 fee refunded.  On the post It’s Just Lunch… Or Just a Franchise Scam?, Tami states:

I am demanding a full refund from “It’s Just Lunch”. They have completely failed to provide even 10% of what was described to me by their then number one “Matchmaker” through numerous phone calls and meetings. They have completely misrepresented their services and available clientele. After signing onto their service I went on a total of “SEVEN” Matched Meetings.

I allowed them the opportunity to ‘Work their Magic’ but was completely disappointed on every occasion. I called after every meeting and explained why the person chosen was nothing like what they said they had available to me and what my specific needs were and promised by them to deliver, were not even close. I was incredibly unhappy and gave detailed information as to what was wrong and missing only to be told each time they understood and would guarantee I would be very happy with the next person they had for me. I ended up going through three separate “Matchmakers” who were all highly trained and skilled in their profession, to finally tell them they do not and have not even come close to the contract we agreed on as to what they had to offer and provide.

I refuse to continue with a service that has completely misrepresented what they are and what they promise to deliver. I gave them many opportunities and all of their chosen “Matches” were nothing like the description of available men described. They did not and do not have the people promised and they did not provide this extensive “Matchmaking” Service that only professionally trained Matchmakers can provide.

Their described service is a scam, I don’t believe they went any further than taking files from a file cabinet not even looking at the names and put them together. Maybe they used a dart board where the same two colored darts hit and were then said to be a match. I am well beyond disappointed with their promises and performance, as you can see and demand a full refund based on their complete misrepresentation. I feel I do not have a binding contract with their company because of the lies and deceit presented by their representatives.

I have tried on numerous attempts personally with “It’s Just Lunch” to get a full refund of $1,800.00 but have been unsuccessful. I hope this letter better describes the reasons for my insisting a full refund and that by now putting it out there in the public, and now also taking them to small claims court, I hope to receive the refund due myself and help others against this fraudulent corporation.

HAVE YOU HAD ANY EXPERIENCE – GOOD OR BAD – WITH IT’S JUST LUNCH? Leave a comment… Share your opinion.

COLD STONE CREAMERY: Bitter Franchisee Alleges Encroachment

According to the Brown Daily Herald, a Cold Stone Creamery franchisee blames the recent failure of her Providence, RI franchise on encroachment from another Cold Stone Creamery location.

Kristina Gedutis, who co-owned the Thayer Street franchise with her husband, Craig, for five years, said the store’s sales were down 30 percent from 2008.

Though the location’s rent remained the same, dwindling revenues made it difficult for the owners to make payments, she said…

“When we first opened, business was great — we definitely had our following,” she said.

“There wasn’t another Cold Stone in Providence, so we got most of the area’s business.” Gedutis said when the downtown Cold Stone opened, she saw revenue drop.

“I am bitter toward that,” she said. “It wasn’t really fair.”

The new competing location Gedutis blames for her store’s failure was the result of a new co-branding partnership between Cold Stone & Tim Horton’s, a Canadian-based restaurant chain. 

Gedutis claims that “the opening of a joint Tim Hortons-Cold Stone location on Dorrance Street downtown negatively affected her Thayer Street parlor’s business.”

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Photo:  A closed Cold Stone Creamery franchise location, Lancaster, PA (FranBest Photo library)

CURVES: In Oregon, Curves Franchises Die Alone

Oregon Curves franchise owners Brandie and Josh Wilson are in trouble.  According to reports, they have been previously evicted by landlords in Ashland, Eagle Point and White City.  Their White City home went into default in April and is due to be auctioned at the Jackson County Courthouse on Tuesday. There are warning signs, such as erratic hours and member complaints, that their three Curves locations are in deep trouble.

Hopefully, the Wilson’s aren’t expecting concern from their franchisor or even fellow franchisees.  According to an article in Oregon’s Ashland Daily Tidings, other Curves for Women franchise owners in nearby towns are primarily concerned about the effect their failing comrade’s clubs will have on their own businesses:

They said bad news about one franchise can taint others.

“The valley is a small place,” said Roger Booth, who owns the east Medford franchise with his wife, Loretta. “People know each other, and people talk. If there is a really bad impression at one of the Curves, it reflects really badly on all the Curves franchises. We work really hard to keep our club clean and a well-maintained place where women enjoy working out. To have another club reflect badly on the reputation really hurts.”

Booth said he has heard three types of complaints from the Wilsons’ customers who have contacted him.

“The hours are really shaky and they’re not open when they say they will be,” he said. “Another common complaint has been the club has been charging accounts even after memberships have been canceled. The third is some have said they felt the environment was threatening.”

Absent from the article are any expressions of concern for the plight of the failing franchise owners, either from their fellow franchise owners and especially from Curves International:

Becky Frusher, a spokeswoman for Texas-based Curves International, said the company will provide transition opportunities for members if a club closes.

“As soon as we are informed of a closure, we begin immediately to try to work with the owner to make sure that the club members do not suffer any loss of membership or workout privileges,” Frusher said. “If the club does close, we attempt to inform the members that they can transfer to another club of their choice for no charge — temporarily until the club reopens or permanently if they wish.”

As usual when quoted about failing Curves franchises, Ms. Frusher makes it clear that Curves International has little interest or involvement in helping failing clubs, content to do nothing until they are “informed” of a closure.  So much for franchising putting you in business for yourself but not by yourself.

She also indicates that there is little or no policing of the brand or franchise quality control exerted by Curves International.  If these troubled franchisees are not maintaining their hours, are billing unethically and have a “threatening” environment, shouldn’t CI intervene?

It’s sad that there’s no hint of nearby owners reaching out to help their troubled neighbor, or – if they are bad operators undeserving of their concern – pressuring CI to intervene, do what franchisors should do and protect what’s left of their brand.

Ine thing is clear: If your Curves is failing, you can believe you are failing by yourself.

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SIGNWORLD: VP Jack Werner Fires Back at Critics

Our earlier post SIGNWORLD Complaints contained excerpts of comments (from complaint site Ripoff Report) critical of the Signworld business opportunity, its founder and president Ken Kindt and Signworld VP of Sales Jack Werner.

On the same forum, Jack Werner, a former Signworld operator, fired back at his anonymous critics.  Werner defended Signworld’s claims that its business opportunity has an extremely low failure rate, stating:

I joined Signworld as an operator in 1995 after doing a lot of my own careful due diligence… I did honestly break even, cash on cash, my first month in business, and wrote my first paycheck to myself in my sixth month after letting the businesses cash reserves build up. I ran my business for 10 years before successfully selling it for many times what I paid for it and I then joined Signworld’s corporate staff because I strongly believed in the business model.

I do know of others that broke even, cash on cash, in their first month, some that broke even in their second, third, and fourth month, most broke even around their sixth or seventh month, and for some it took longer. Believe it or not, we actually did have an owner who did break even his first week in business. But that was a true testament to the hard work that owner put in securing a large order before his doors were even open. It is an owner driven business. Some people just “get it” sooner than others do.

It is impressive that Jack Werner has experience as an owner operator, and that he was willing to publicly address his critics in a professional manner.  However, his claim that one owner “did break even his first week in business” is especially troublesome.

How could an owner making a $183,000 investment “break even” his first week in business?  Did the owner secure this enormous order, collect the money, receive the materials and complete all of the necessary work in the first week?  Jack Werner must surely know that that’s what would be necessary for the owner to recognize monies received as income.

Does that mean that this owner maintained profitability since the first week, or that he did well his first week?  How many achieve profitability from Day 1?

Perhaps Mr. Werner – or someone else familiar with this claim – can provide the specifics.

ARE YOU FAMILIAR WITH THE SIGNWORLD OPPORTUNITY?  WHAT DO YOU THINK?  SHARE A COMMENT BELOW.

logo: SIGNworld

SIGNWORLD Complaints

SIGNWORLD claims it is a business opportunity, not a franchise.  Others use a different term to describe SIGNWORLD:  A Ripoff. 

As an alleged business opportunity, Signworld makes bold claims on its website that would be illegal  for a franchise, including lots of attractive earnings claims and promises of “high profit margins” and “high resale value upon retirement” for its $185,000 investment.

But comments on complaint website Rip-off Report are critical of SIGNWORLD, founder Ken Kindt and VP of Sales Jack Werner.  Here are some excerpts:

December 16, 2008, dh from San Antonio, Texas wrote:

…THEY PROMOTE “No previous industry experience is necessary” because SIGWORLD is supposed to reduce the risk of failure. B.S. … It is bad enough that SIGNWORLD sell this lie by building up misleading statements on statistics (never see this in writing though) of low failure rate and cleverly hiding the awful truth of failure. I was told 5% in the 20 year history. I found out it’s closer to 40% once I got in and they had my money….

It’s a shitty competetive dog eat dog business. Your lucky if your gross profit ends up at 50% with this model…. any one can order the bread and butter business you want online for half the price you can do it for.

One more thing…. CITY REGULATIONS are getting tougher and tougher to put up signs. You basically make a sale and go back and research wether you really have a sale or not…

YOU WILL LOSE MONEY EACH MONTH FOR 2 TO 3 YEARS… it seems about 80% of new owners lose money for 2 or 3 years and they either close up or continue to work without a paycheck. This is true even though you do exactly what SIGNWORLD and Jack Werner said you should do….

MY ADVICE-Rather than wait until your broke……STAY AWAY!!!

December 31, 2008  Anonomous of Ofallon wrote:

They underestimate the capital required for start up. The performa’s they provide you with are erroneous….plan on an additional 100k over what they tell you if you want to stay in business. I asked for help trying to sell mine and JW’s comment was…”it would be against our best judgement to try and sell a failing business to a perspective client” How ironic!!

January 23, 2009 Rk of Spokane wrote:

…If you feel compelled to spend well over $250K in capital, I recommend that you convert it to dollar bills, pile it up at a camp site, light it on fire, and gather the kids around for a good old fashioned marshmallow roast rather than waste your time with Signworld.

Seriously, if you really want to get into the sign business, just visit a few sign shops and they’ll sell to you on the spot. Because the only thing that owner wants, is to get the bloody Hell out of his Signworld mistake…

October 13, 2009 signgirl of newnan wrote:

I work for a signworld company, not saying where, but have been there since the start up…

Ken Kindt sells dreams, and many people have bought it, i wish i could sit down with the man, and ask him how he sleeps at night knowing he has reemed so many people, but you know, people like him would laugh if they read this, because money has taken over ethics and morals.

Be sure to read: SIGNWORLD: VP Jack Werner Fires Back at Critics

ARE YOU FAMILIAR WITH THE SIGNWORLD OPPORTUNITY?  WHAT DO YOU THINK?  SHARE A COMMENT BELOW.

logo: SIGNworld

FTC’s Janitorial Franchise Buyer’s Guide

Interested in Janitorial or Commercial Cleaning franchises?  The FTC and the Maryland Attorney General’s Office jointly produced the Buying a Janitorial Services Franchise guide reproduced below.  While it was published in 2001, it is just as valid today.  Also read:

JAN-PRO: Janitorial Franchise Warning

JAN-PRO Franchise Complaints

CHAMPION CLEAN Using Bogus Franchise Statistics

_______________________________________

Buying a Janitorial Services Franchise

Produced jointly with the Maryland Attorney General’s Office.

If you’re thinking about starting your own business and have only a small amount to invest, you may be considering buying a janitorial services franchise. For a fee, a janitorial service company (the “franchisor”) typically provides you (the “franchisee”) with customers and marketing, billing and collection services.

Every franchisor has success stories to share. Be cautious. While success in the janitorial service industry is possible, it’s not a guarantee.

A glossary of terms commonly used in the franchise industry is included at the end of this brochure.

How Janitorial Services Franchises Work

In a typical janitorial cleaning franchise, you pay the franchisor a fee for a “package” of cleaning accounts. The fee is based on the dollar value of cleaning accounts that the franchisor will make available. The fee usually is about half the gross income the accounts are supposed to generate in a year. For example, for a fee of $10,000, you’ll get accounts worth $20,000; for a fee of $15,000, you’ll get accounts worth $30,000. You also may have to pay ongoing royalty or management fees.

The franchisor may offer you financing. This may sound especially attractive if you have trouble getting credit from traditional lenders.

The franchisor is supposed to offer you cleaning accounts that will produce the level of income represented in the package you purchased. However, several factors can affect that level of income. For example, if you don’t accept an account, the franchisor may not have to offer you a substitute. Or, if you refuse an account because you feel it’s located too far away, you may lose your right to that income. Also, if you lose accounts because you did a poor cleaning job, the franchisor doesn’t have to replace those accounts.

Problems You May Face

The Federal Trade Commission and the Maryland Attorney General’s Office advise you to use caution when thinking about buying a janitorial services franchise, which often appeal to immigrants and others who speak limited English. The franchise agreement you’ll receive from the franchisor may be long and complex. It may be difficult to understand your legal rights and obligations, and the obligations of the franchisor. Consider getting professional advice. Ask a lawyer, accountant or business advisor to review the franchise agreement. The money and time you spend on professional help may save you from a bad investment.

Here are some of the problems you may face:

• Accounts offered versus accounts received. There may be a difference between the accounts the franchisor promises to offer you and the accounts you actually receive, as well as the revenue that comes with them. For example, the franchisor may promise to offer you accounts generating $1,000 in monthly billings for the first year. To meet its obligations, the franchisor may offer you more than one cleaning account. But given time conflicts, distance issues or other problems, you may not be able to accept all the accounts the franchisor offers. What’s more, the franchisor may offer the same accounts to several franchisees on a first-come, first-served basis. If you can’t accept an account because you can’t get to the location, or if another franchisee accepts the account first, the franchisor may have satisfied its obligation to offer you accounts. Because the franchisor may not tell you about this policy before you buy the ”package” of accounts, you should not count on receiving all the revenue that the franchisor promised at first.
• Rejected accounts. The franchisor may not have to replace an account that you reject.
• Franchisor-selected accounts. The franchisor usually selects accounts for you. The size, number and location of the accounts may not be what you expect. For example, the franchisor may require you to service more than one account at the same time, or the job sites may be far apart.
• Lost accounts. Most janitorial franchise agreements specify that if a customer cancels the cleaning contract, the franchisor doesn’t have to replace the account for you. In fact, you may have to pay an extra sales and marketing fee for a new account to make up for the lost income.
• Integration clauses. The franchise agreement you sign may contain a clause that limits the terms of your agreement to those specifically detailed in the written franchise agreement. This means that any oral claims or promises made by the franchisor are not part of your agreement. This is one reason why it’s so important to get all promises in writing in the franchise agreement.
• First year time lag for receiving accounts. The package of accounts you buy will suggest a level of income within a year. But the franchisor may take several months to supply you with the promised accounts. That means you may not earn any income until several months after you’ve purchased the package, so you may not earn the estimated annual income. Therefore, it’s important to have other sources of income during your first few months of operation.
• Ongoing fees. The franchisor may charge you a monthly management or service fee. You’ll have to pay the fee even if you don’t have any income from your cleaning business that month. If you finance the franchise fee, you must make the monthly payment on that debt whether or not you’re receiving income from the cleaning business. And although you may find customers without the franchisor’s help, any income from a cleaning account you solicit will be included when the franchisor calculates the royalty and management fees you owe.
• Franchisor-owned accounts. The franchisor may own all the customer accounts, including those that you get on your own. This means that if your franchise agreement ends, you will not be able to service the accounts for which you paid a fee, and you won’t be able to service the accounts you got on your own, either.
• Training. Get information about the franchisor’s training program before you invest. The franchisor decides the type of training you’ll get. It may involve watching videos and reading books; it may not involve classroom or on-site training.
• Contract bidding procedures. The franchisor may not tell you how it bids for cleaning contracts or what specific services you must provide to the customers. The franchisor may only tell you that you should be able to earn $12 to $15 an hour doing janitorial work. However, when bidding for cleaning contracts, the franchisor may offer your services at a lower rate, and you may have no say in whether the amount charged is reasonable. So even though the account is represented as being worth a certain amount of money, it may not be worth that much to you, and you may not be able to make a profit once you pay for expenses like supplies and transportation costs.
• Short-term accounts. People who operate janitorial franchises often find that customers rarely maintain an account for more than a year. That’s because customers prefer short-term contracts so they can shop for the best deal. If the franchisor offers you replacement accounts, you may have to pay a new referral or marketing fee.
• Performance obligations. You may have to meet minimum monthly performance or growth requirements. If you don’t, you may lose the franchise. Worse yet, you may not have the right to a refund of your franchise fee.
• Payment for services. The franchisor collects payment from your customers. If the customer doesn’t pay, you don’t get paid. The franchisor may not be legally obligated to force the customer to pay, but if the franchisor sues for payment, you may have to pay the legal costs.
• Personal guarantees. Many franchisors require franchisees to personally guarantee the obligations of the franchise business. This means that if your business assets don’t cover your franchise obligations, you could lose personal assets, like your home or car.
• Anti-competition rules. You and your immediate family (your spouse and children) may not be allowed to have an ownership interest or perform services in another cleaning business, even if your family members don’t have an ownership interest in your janitorial franchise. This restriction may continue even after your franchise ends.

The FTC’s Franchise Rule

By law, a franchisor must give you a detailed disclosure document. The disclosure document should include:

• the total number of franchises, and the number of franchises terminated or not renewed during the previous year;
• the bases and assumptions for any claims about potential earnings or the earnings of existing franchisees;
• the cost of starting and maintaining the business;
• the names, addresses and telephone numbers of at least 10 franchisees who live closest to you (names, addresses and telephone numbers of at least 100 franchisees is required in some states, including Maryland) ;
• the background and experience of the franchisor’s key executives;
• a fully audited financial statement of the franchisor;
• any lawsuits against the franchisor or its directors by franchisees; and
• the responsibilities you and the franchisor have to each other once you’ve purchased the franchise.

You should receive the disclosure document at least 10 business days before you pay any money or legally commit yourself to buying a franchise. Ten business days should give you enough time to review the document, get answers to your questions, talk to franchisees and get advice from an attorney, accountant or business advisor.

Protect Yourself

Buying a franchise is a big decision. Before you commit, take the following precautions:

• Read the company’s disclosure document. Review it carefully to learn more about your obligations, the litigation history of the franchisor and failure rates. This information will help you decide whether franchisees are dissatisfied with the franchise.
• Talk to other franchisees. Don’t rely only on the information the franchisor gives you. Talk to current and former franchisees about their experiences with the franchisor. Their names, telephone numbers and addresses should be in the company’s disclosure document. The franchisor may refer you directly to franchisees who are known to be successful. Don’t rely on references the company selects.
• Contact your state franchise administrator. If you live in California, Hawaii, Illinois, Indiana, Maryland, Minnesota, New York, North Dakota, Rhode Island, South Dakota or Virginia, your state has an office that regulates the offer and sale of franchises. Contact your state franchise administrator before you invest. Ask if the franchise you’re considering is registered to offer franchises in your state. If you live in Maryland, call the Maryland Attorney General’s Office at (888) 743-0023, or visit www.oag.state.md.us. If you live outside of Maryland, you can find the name of your state franchise administrator, by calling the North American Securities Administrators Association at (202) 737-0900 or visit www.nasaa.org. You also may contact your state Attorney General (www.naag.org) or Better Business Bureau (www.bbb.org) for more information.
• Get all promises in writing. If a salesperson tells you that the franchisor will give you accounts near your home, but the written agreement defines the geographic area more broadly, it’s what’s in the written agreement that counts. If a provision in the agreement is different from anything you discussed with the salesperson, demand that the written agreement be changed. If a salesperson tells you that you should be able to make $12 to $15 an hour, make sure that prediction is included in the disclosure document. If the salesperson or franchisor won’t agree, walk away from the deal.
• Review the franchise agreement carefully. It’s important to understand all the conditions of the agreement. It controls your relationship with the franchisor. Make sure the agreement spells out the details so there are no surprises.
• Understand your obligations. As a franchisee, you may have to pay royalties and other fees. Find out exactly what types of fees you’ll have to pay, how much you’ll pay and how often.
• Investigate claims about potential earnings. The estimated value of the package of accounts you buy may not reflect the income you’ll earn from servicing those accounts. Find out how the company assigns a value to the accounts. Ask how many franchisees made the represented income and where those franchisees are located.
• Be cautious when financing. While financing your purchase through the franchisor may seem appealing, the terms of the financing agreement may not be the best deal for you. For example, you may have to sign a note to secure the debt and agree to terms that could make it tough for you to sue the company if you wanted to cancel your agreement. Before you agree to franchisor financing, be sure you understand all the terms of the deal.
• Consider getting professional advice. Ask a lawyer, accountant or business advisor to review the disclosure document and franchise agreement. The money and time you spend on professional help may save you from a bad investment.

For More Information

The FTC also publishes a series of consumer brochures on franchising and business opportunities. For free copies, contact the Consumer Response Center, Federal Trade Commission, Washington, DC 20580, 1-877-FTC-HELP (1-877-382-4357), TDD: (202) 326-2502, www.ftc.gov.

The State of Maryland also publishes investor brochures about franchises and business opportunities. For copies, or for more information about Maryland’s requirements regarding the sale of franchises and business opportunities, contact the Office of the Attorney General, Maryland Securities Division, 200 St. Paul Place, Baltimore, MD 21202, (410) 576-6360, www.oag.state.md.us, email: securities@oag.state.md.us.

Glossary of Terms

Disclosure Document – A written document that outlines the general franchise offering, including background information of the franchisor, a summary of the franchise agreement, and a list of current franchisees.

Franchise Agreement or Franchise Contract – The written document that spells out the legally binding obligations between the franchisor and the franchisee.

Franchise Fee – The purchase price for the franchise.

Franchisee – Any person who buys or invests in a franchise.

Franchisor – Any person who sells a franchise.

Management or Service Fee – A fee paid the franchisee for extra or ongoing support, such as providing additional or substitute accounts.

Royalty Fee – A specific payment made by the franchisee for the right to use the franchisor’s trademark. In most instances, the franchisee pays this fee throughout the term of the agreement, regardless of anything else the franchisor may or may not do.

The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters consumer complaints into the Consumer Sentinel Network, a secure online database and investigative tool used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

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GEEKS ON CALL: Latest Franchise Rumors, Allegations

Geeks on Call news, rumors, opinions and comments continue to come in regarding the downward spiral of this once-promising franchise company.  The comments below appeared recently on Franchise Pick blog posts Geeks On Call (GOCHE) Troubles Deepen and GEEKS ON CALL: Franchisee Geeks Squeal on Papa Geek.

Do you have any insights or opinions on the Geeks on Call franchise or company?  Share it below.  Also read Geeks on Call Franchisees Sue Struggling Franchisor & Geeks On Call Franchisees Allege Their Franchisor is Breaking Law.

On October 12, 2009, Geek Expert wrote:

Has anyone heard that Geeks on Call has left their offices of 10 years and now have a virtual office in some building while their dispatchers answer the phones from their own home? They have also co-located their IT infrastructure and customer records with some other IT company. They say they are doing it to provide better services to their franchise owners but say nothing about the lawsuit against them for not paying their rent.

2009/10/12 at 5:52pm

Om October 14, 2009 “Dick Artese” wrote:

Looks like the GOC corporate offices are no longer at their 814 Kempsville Rd location. A big moving truck came in the darkness of night and moved all the stuff out of there.

Calls to the call center and asking for a mailing address they will still provide the 814 Kempsville Rd address, but when pressed will admit that they are no longer at that location.

 2009/10/14 at 10:03am

October 12, 2009, X Geek Stockholder wrote:

What has happened is that GOCA management forced these owners into bankruptcy by continuing to take their large royalties and advertising fees and did not provide the services or the TV ads the owners were being told every month they were getting.

GOCA put the owners in Phoenix, Portland, KC, Boston, DC and Chicago out of business so they could take over their revenues and all of the hard work they did in building a customer base that was loyal by using top of the line techs.

Since GOCA controlled the phone number and email addresses and our bank accounts they decided to put their largest owners out of business and to put ONforce techs in our place for what their 10Q called “a more profitable 3rd party tech model”. Instead of getting 11% royalty for each invoice GOCA is now able to pay these non certified, inexperienced 3rd party techs a small fee per call and keep the rest for themselves. Most of these Onforce techs do not have background checks and none of them have to drive company cars.

GOCA let us build the regions with our monies and sweat then forced us out of business to take over the good will and brand we were able to hold on to through their myriad of bad decisions and brand changes.

As they say what comes around goes around and the lawsuits against GOCA are not over and are just beginning once the other owners across the country find out that Richard Cole was working with one of their largest franchise owners to buy up failed franchises to keep them off of the UFOC and to hide their failing business from them and and prospective investors.

The Geeks on Call system did not work from the beginning and this was a constant concern of many but GOCA kept selling franchises to unsuspecting investors and then their stock which is selling for less than a penny per pink sheet the last I checked having been delisted.

 2009/10/12 at 10:40am

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LIBERTY TAX: Should Franchisees Call Customers Crackheads?

On the post LIBERTY TAX Service Complaint, all you need is cash! complained that when she went to her Liberty Tax Service after receiving a call her refund would be ready, she and others arrived to find the doors locked.  The delay, she claimed, made her default on payment commitments. 

  When she complained to the franchisee and demanded a refund of her fees, she claims she was told “YOU MUST BE A CRACK HEAD B$%&@ FOR WANTING YOUR FEES BACK.”

While calling customers “crackheads” probably isn’t recommended in the Liberty Tax Service customer service manual, commenter Ed was unsympathetic.  Ed wrote:

Ok, a couple things stood out in this post that I have to reply to. It appears everthing was done great all the way up to the point of picking up your check on Saturday.

First of all the office manager is not the cause of your collection from what I see. We have all been there before, at least most of us, and we are down to the last second to pay and if everything lines up correctly and everything in the universe is alligned we will be able to pay a bill. If the post man failed to deliver your check that day would he be responisble and would you want to sue the post office? Yes you should of got your check that Saturday from the way it sounds but if you would of filed 2 weeks earlier you also would have gotten the bill paid. If it was such a crisis and you were getting a refund why didnt you file earlier? Then the bill would of been paid in plenty of time and there would of been no collection. So I do not see where the tax office is to blame for your collection. You have to be willing to take responsiblity for your actions and realize that if you would of acted in a timely manner you would not be in collection.

Now if the office said they were going to be open and wasn’t then there is a problem. It sounds as if there is a customer service issue and I see every reason for you to be displeased about that. Now, when there is a customer service issue I think the first thing we need to remember is calling a company that has wronged you and berating them usualy is not a good way to get what you want. I can only guess but it appears that some things were said by you before the manager told you to “call any lawyer you want”. I could be off base a little but that comment would make it appear you threatened legal action when you called. If so, that is a huge lesson to be learned. I am a business owner and as soon as someone threatens legal action I shut down and tell them that the conversation has ended and that our attourneys can now speak because we no longer have anything to talk about.
Never threaten a lawsuit unless your serious because it does no good. Business owners hear that so many times and it does not scare them and you are not doing yourself any favors as a consumer.

Lastly this was the office manager who was rude to you and if I was in your shoes I would of politley ended this conversation with her and attempted to contact the owner. Once again if your plan is to call and berate people and expect them to give you what you desire then you will most always be dissappointed. If I am upset at a company and I want some action I go by this simple rule. If what I want is action then I give them every opportunity to give me what I want by being professional. If I want someones head and I am just mad and want to “go off”, I realize that I probably won’t get anything except the peace of mind of “going off” and letting them know how I felt.

Yes there is a huge customer service problem with what happened to you but its just that a customer service issue. I think there is just as big of a problem of a customer trying to blame items that were not the companies fault on them in an attempt to make the story look better and more in the customers favor. Also at the end you talk about ongoing poor customer service at Liberty Tax which confuses me a little. You said the taxes and the preparer were great?

There is no doubt there was bad customer service that took place here. I also think the situation was handled incorrectly by both parties.

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