USA Mobile Drug Testing: 6 Conclusions One Could Draw from the 2013 FDD
August 9, 2013
USA Mobile Drug Testing: 6 Conclusions Franchise Prospects Could Potentially Draw from the 2013 USA Mobile Drug Testing FDD
We recently featured the former USA Mobile Drug Testing franchisee’s scathing review of the company’s 2013 Franchise Disclosure Document (FDD) here:
We wondered: What conclusions could prospective USAMDT franchise owners reasonably draw from the criticisms made by the former franchisees?
In our opinion, there are 6 negative conclusions USA Mobile Drug Testing prospective franchisees could draw from this controversy.
If nothing else, it indicates 6 questionable areas that franchisees should explore before committing to the USAMDT franchise.
#1 USAMDT Doesn’t Value Franchisee Loyalty
A significant number of franchisees angrily left the USAMDT system in 2012 and took legal action against the company. CEO Joe Strom sent memos to the remaining franchisees, telling them how much he valued their loyalty and continued support.
Evidently, there are limits to Mr. Strom’s appreciation. In the 2013 FDD, he set the franchise fees for new franchises to be $14,100 less for a single territory than existing “loyal” franchisees paid, $15,000 less for two territories than his “loyal” franchisees paid, and $9100 less for three territories than his “loyal” franchisees paid.
Additionally, the royalties have been reduced for new franchisees from 9% to 6.75%.
Existing franchisees have reportedly stated that Mr. Strom has not mentioned rebating them the portion of their franchise fees they were obviously overcharged, nor has he addressed the fact that new franchisees will be paying significantly lower royalties for exactly the same services as they receive.
Does this sound like a company that repays the loyalty of its franchisees? Hopefully, USAMDT will announce that it has at least reduced royalties for ALL franchisees.
#2 USAMDT Wants Franchisees to Rely on Fiction, Not Fact
The Former Franchisees state:
Let’s discuss Item 19, the most misunderstood and most important section of the FDD… we are on the 4th iteration of USAMDT’s FDD, they don’t list financials for a “typical” franchisee in the network. They list hypothetical tables. And the hypothetical year 1 has one netting $8K. That’s it? What happened to $145K? They name a franchisee-affiliate in Las Vegas that has been up and running for at least 3 years. Why aren’t they using those financial numbers? There are plenty of other franchisees that have been in business for at least 2 years and longer…why aren’t they being used? If the hypothetical tables were derived from actual success, a new buyer should want to see real financials…and talk to those successful franchisees. Just 2 accounts per month and you will realize $57K in revenues in year 1. Where the heck did they pull those numbers from? Not one single franchisee has seen that kind of income in year one when I was in the network and I’ve only been out for 7 months. The profit margins are outrageous too; 43%! Ask questions about this!”
The Rebel franchisees make a good point. Why does USAMDT want franchisees to rely on hypothetical, made-up numbers rather than real operating figures?
And why does Item 6 list the royalties at 6.75%, yet the Item 19 tables give prospective franchisees their profitability based on a 6.5% royalty?
# 3 USAMDT is Financially Unstable
The former franchisees point out:
The balance sheet. Be sure to show this to your CPA or your banker. Watch the banker’s eyes bug out. When examining the balance sheet, USAMDT has about $.10 of assets for every $1 worth of liability. Would a banker loan money looking at a balance sheet like this? How on earth does this company pay its bills? They’re insolvent. And it doesn’t show any member contributions, which means neither Joe nor Kevin have contributed money. Most business owners would have already done this to elevate the balance sheet if nothing else, to get a loan.
And why aren’t USAMDT’s current financial statements being used in this FDD?
#4 USAMDT is a Disorganized, Rushed & Incompetent Company
Why does Item 6 list the email address at $84 per year? Then one skips ahead to page 30, and it states the email fee is $72 per user, per year. Again, which is it? $84? Or $72?
Oh, and on the following pages, they list revenues of $1.809M, expenses of $1.807M, which is a net profit of $2,450. But the financial statement says net loss $2,450. Simple math would conclude this to be a net income….
…while Item 6 lists the royalties at 6.75%, the Item 19 tables have the royalties at 6.5%.
As the franchisees point out, there are numerous factual and typographical errors in the FDD. If USAMDT’s work is this sloppy in an important legal document, what kind of quality work can franchisees expect?
#5 USAMDT is Afraid You’ll Realize You Can Do This On Your Own
The ex-franchisees point to this clause in the FDD:
This is hilarious: Under Item 17, page 43, would have you, new buyer signing a non-compete clause and non-disclosure clause, as well as the immediate members of your family and anyone living in your household. “Honey! You’re gonna be late for the school bus! Wait! Before you go, you need to sign this non-compete and non-disclosure agreement and under no circumstance are you allowed to breath a word of USA Mobile Drug Testing today at Show And Tell!” Another ridiculous clause.
While we understand the need for such a clause, it does indicate that USAMDT is overly concerned that franchisees will feel they can do just as well without USAMDT once they see how the business works.
#6 Maybe I Should Do This On My Own
The ex-franchisees point out:
There’s also been a change with the cross territorial policy. Pay very close attention when I say this, this business is very much a referral based business! Your happy clients tell their friends who call you and the might be in another territory or you might spend a great deal of time and energy selling a company that has locations outside of your territory, you get to “give” all of that revenue to your neighbor franchisee that didn’t work for it. Wouldn’t you want some compensation for your efforts? Ridiculous!
The ex-franchisees seem to be happier running their businesses as independents – free from the royalties, restrictions and geographical boundaries of the USA Mobile Drug Testing franchise.
If we were considering going into the mobile drug testing business, an important question would surely be: Do I really need a USAMDT franchise, or is this something I can do better on my own?
USA Mobile Drug Testing Issues & Warnings:
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Tags: drug testing franchise, Joe Strom, Joseph Strom, mobile drug testing, USA Mobile Drug Testing, USA Mobile Drug Testing complaints, USA Mobile Drug Testing franchise, USAMDT Franchise Disclosure Document, USAMDT FDD, Franchise Disclosure Document (FDD)