Goodbye 2016! Bonus Included for You

Well 2016 was certainly an interesting year ... most of my comments would likely cause some controversy (isn't that what a contrarian lives for?) but I will refrain and say only that 2017 could be even MORE interesting! And, it would be even better if I improve in Fantasy Football and the Eagles have a winning season.

Thank you readers ... for some unexplained reason visits to this blog have increased dramatically over the last few months (have I been discovered?) -- this month alone there were over 7,100 views and all-time visits just topped 19,000! Again thank you.

Some quick news: my ABA Forum on Franchising colleague and VERY good friend, Ken Milner, just reported a "Holiday Present for Franchisors in PA" via the ABA Forum List-Serv. This is another chink in the "joint-employer" stance. The Pennsylvania Supreme Court let a lower court's decision stand that held that a franchisor was NOT a joint employer of an employee of a Saladworks' franchisee, at least in regard to being liable for workers compensation payments. (lower court decision: Saladworks, LLC, et al v. WCAB (Gaudioso), et al, No. 1789 C.D. 2014, decided October 6, 2015) Thanks Ken! As noted in my last post (Joint Employer Controversy ... Trumped?) , perhaps 2017 will see the demise of this ill-begotten theory (at least in the franchise context).

And here is a "Holiday Present" for you -- this year I had the privilege of working with Bethany Appleby (Wiggin & Dana, LLP) in presenting our paper at the ABA Forum on Franchising's Annual Meeting in November - Show Me the Money! Maximizing Monetary Recovery in Franchise Cases. If you are interested in that sort of thing -- here's a copy for you. 

Wishing you a Successful 2017!

Joint Employer Controversy ... Trumped?

Wow ... I admit to falling off the blog wagon of late! No real excuse except ABA Forum on Franchising burn-out (as author/presenter), college football, pro football, and, oh yeah, a number of client-litigation matters!

First, thank you for visiting this blog ... there have been over 14,000 visits since starting this effort in January 2015 and over 4,000 visits last month - maybe I should post LESS frequently!

Many of my posts are stimulated by new franchise cases, striking client-experiences, and hot franchise topics. I think my "stimulation" has been dampened by the Trump-election and the litigation matters mentioned above (they become obsessions!) But let's talk Trump and the joint-employer controversy for a moment ...

I have posted on the joint-employer issue a few times (here and here) and have advocated to "relax" ... let the courts sort it out. In the meantime, franchisors have gone into protective-mode, changing their procedures, agreements, and manuals. Now even the Small Business Administration has gotten into the act - issuing a new mandatory Addendum to Franchise Agreements for franchisors seeking SBA financing for franchisees via the Franchise Registry that includes the following provision: EMPLOYMENT - Franchisor will not directly control (hire, fire or schedule) Franchisee’s employees. (tip of the hat to Edith Wiseman with FRANdata for passing it along) WOW, this certainly smacks of one government-agency feuding with other government-agencies (NLRB and DOL).

So what does this have to do with Trump? Since the election, a number of my ABA Forum on Franchising's colleagues have been commenting on the Forum List-Serv that Trump's election may derail the efforts to hold franchisors jointly liable for their franchisees’ employment law violations; noting that the NLRB will likely become Republican controlled and the leadership at DOL is destined to change as well. By the by, the joint-employer session at this year's Forum's Annual Meeting had one of the largest attendances. (Authors: Joe Fittante, Justin Klein, and Karen Marchiano, with "pinch-hitter" Shelly Spandorf).

So stay tuned ... Trump's election may have a silver-lining for some segments of our world.
PS - Ohio lost its favorite son last week - "Godspeed John Glenn."

Recent Decision - Lost Future Royalties Denied

Tip of the hat to Bruce Schaffer at Franchise Valuations for reporting on this case in his "The Franchise Valuation Reporter." Bruce is colleague from the American Bar Association's Forum on Franchising who focuses his expertise on valuation and damages, cyber crime, expert testimony, and tax nexus.

Our topic for this post is Lost Future Royalties - this has been the subject of my earlier posts: Franchisees - Damages Warning: Lost Future Royalties and Franchise Valuation through Damage Analysis.

The case is Mister Softee, Inc., Mister Softee Sales and Manufacturing, LLC, and Spabo Ice Cream Corp. v. Reza Amanollahi, 2016 WL 5745105D. New Jersey. Civ. No. 2:14-CV-01687(KM)(JBC) - As noted, the case involved a claim for lost future royalties and the decision followed the well-known but controversial decision in Postal Instant Press v. Sealy, 43 Cal. App. 4th 1704 (1996).  Postal Instant Press v. Sealy and cases that adhere to its rationale, hold that a franchisee cannot be liable for lost future royalties when the franchisor ELECTED to terminate the relationship even though the franchisee's act (ex, failure to pay royalties) gives rise to the termination.

After reviewing New York case law, the judge in Mister Softee concluded that summary judgment would be denied on Mister Softee's claim for lost future royalties: "Here, Mister Softee decided to terminate Amano's Franchise Agreements because Amano moved his trucks out of the Manida Street Depot and stopped making payments under the Truck Notes. Mister Softee faced a choice: terminate the Agreements, or remain within the Agreements and sue for the ongoing unpaid royalties. It chose the former."

So mark one up for FRANCHISEES on this controversial topic! (even though Mister Softee brings back many childhood memories while growing up in south Jersey) Thanks Bruce!

If you are planning to attend the American Bar Association's Annual Forum on Franchising in Miami on November 2-4 don't forget to drop into Show Me the Money! Maximizing Monetary Recovery in Franchise Cases, where I will join Bethany Appleby (Wiggin & Dana, LLP) for an informative session.

Franchise Disclosure Document - Dissected - Part Four

Now for the wrap-up of this series of posts. (If you missed Part One, Part Two, or Part Three, you can click on the hyperlinked text)

Although we could focus on many of the remaining FDD Items, Item 19 - Financial Performance Representations deserves our attention. Franchisors need to get it right and franchisees need to understand their right to additional information.

Before 2007, this item (under the old UFOC format) was labeled "Earnings Claims" and was much stricter than today's version. To encourage more franchise systems to provide financial performance information, the rules were loosened. Now, the Amended FTC Rule "permits a franchisor to provide information about the actual or potential financial performance of its franchised and/or franchisor-owned outlets, if there is a reasonable basis for the information, and if the information is included in the disclosure document." As a result, this disclosure has been given a wide berth.

When we dissect the language, we see that the information can simply be "potential" performance if there is a reasonable basis. Now the FTC Compliance Guide carries a section on the "Reasonableness of a Financial Performance Representation" (p.135) that I will let interested readers review on their own; but I want to focus on another requirement of Item 19.

To make a proper disclosure in compliance with the Rule, in addition to having a reasonable basis, a franchise system must have "written substantiation for the representation at the time the representation is made." However, in the FDD, a statement indicating that "written substantiation for the financial performance representation will be made available to the prospective franchisee upon reasonable request," need only appear. The FTC Compliance Guide notes that written substantiation means that the franchise system must have "supporting data underlying any representation..."

Much more could be said about the Item 19 requirements (see the Amended FTC Rule and the FTC Compliance Guide) but the take-away here is: franchisors must have the underlying data ready to produce and franchise-buyers should ask for it.

Although I must say in my years of practice, I have found that franchise-buyers are hesitant to request the information even when counseled to do so! Why? They don't want to appear uncooperative or distrustful. Maybe franchisors should be more aggressive in offering the data? After all, its supposed to be the reasonable basis on which buyers are encouraged to buy into the system!

The End!

Franchise Disclosure Document Dissected - Part Three

We pick-up our observations about the Franchise Disclosure Document (FDD) with Item 11 - Franchisor's Assistance. If you missed Part One or Part Two, you can click on the hyperlinked text. 

Item 11 is the most comprehensive in the FDD - and an important one for both sides of the franchise equation. Just a few insights here on some of the topics covered in Item 11:

Operations Manual - nearly every franchise system has an operations manual. The manual is the "bible" for the operating system - operational requirements are enforced through the franchise agreement. Item 11 mandates two alternative disclosures regarding the manual: either the Table of Contents must be provided OR the buyer must be given the opportunity to review the manual before purchasing. Few franchisors offer the opportunity for review and only provide the Table of Contents. TOC's are typically generic and offer little insight into the manual. Few franchise-buyers go further and rely on a cursory TOC review. This is an important piece! Franchise-buyers should request access to the manual and serious franchise systems should grant greater access (protected by a non-disclosure) before the sale. Little is gained by looking at the TOC.

Training - another important item is training. Item 11 discloses the Training Program in a Table format, covering the subject, hours in the classroom and on-the-job, and the training location. A generalized description of the program is usually offered and the instructional materials, along with the instructors' experience. Here is the observation: many times franchisors do not fully disclose required information about the instructors. It is not acceptable to simply refer back to Item 2 ("Business Experience" of the main officers). The name of each instructor and their length of experience "in the field" and with the franchise system is required. So franchisors, be proactive and offer the full information; franchise-buyers, make sure you get all the information.

Time Limit to Open - Item 11 discusses the amount of time franchise buyers will have to secure a lease and open the business. Everyone is interested in opening as soon as possible. But, some of the time-frames are too short, too unrealistic. In some markets getting a lease alone can take 6-12 months. This is really a negotiating point for the franchise agreement - seek to expand the deadline. Most franchisors are flexible on this point ... because they realize it may well take more time than they estimate.

Hopefully, one more part upcoming to finish the dissection!

Franchise Disclosure Document Dissected - Part Two

We continue our review of Franchise Disclosure Documents (FDD) from a few insights that have come my way over the years. Insights that may be of value to franchise purchasers and franchise companies alike. If you missed Part One, you can find it here. We will not cover every FDD item but focus on the highlights.

Today let's start with FDD Item 5:

• Initial Fees - this item covers the amount of money or fees paid directly to the franchise company at the beginning of the process. Typically referred to as the "initial franchise fee," this amount should be clearly indicated in Item 5 and match the corresponding amount or amounts disclosed on the Cover Page. On the Cover Page, the franchise company should have at least two amounts disclosed: the total estimated investment required that corresponds to the Item 7 chart (Estimated Initial Investment) and the amounts that must be paid to the franchisor to get started (Initial Fees), again matching the Item 5 amounts. If there is a development agreement fee or other initial charges due to the franchisor, those amounts must be disclosed and accurately reflected on the Cover Page. If the amounts don't match something is wrong.
• Estimated Initial Investment - Item 7 is arguably the most important item in the FDD. It is supposed to inform readers of the total expenditure to get started (so it should repeat the Item 5 amounts plus a variety of other expenses) and identify the working capital needed for at least the first three months. Franchisors are wise to  draft this section carefully and review it on an annual basis to ensure accuracy. Although it is an "estimate," grossly understated amounts could lead to disputes when a franchisee's experience is negative and the start-up estimate was below par. Franchise buyers should not stop at the Item 7 estimate. Asking other franchisees about their actual start-up cost and how it compared to estimate, is highly recommended. As an example, sometimes smaller items such as professional fees (attorneys and accountants) are under-estimated. Franchisees need to conduct due diligence on this important item. Finally, if there is a development program, a separate estimate should be provided for that.
• Financing - If the franchise company offers financing for start-up costs (including inventory and equipment) or assists with securing a loan, it should be explained in Item 10. Here is something I have encountered, especially with new franchise systems: no disclosure or indication of financing is provided in Item 10 but "to make a deal" a franchisor enters into an installment payment arrangement with a franchise purchaser for some of the initial fees or costs. This is financing! And the terms of any financing MUST be explained in Item 10.

More later!

Franchise Disclosure Document Dissected - Part One

After reviewing hundreds of Franchise Disclosure Documents (FDD), writing and developing dozens of FDDs, and practicing in this area for 30 years, a few insights have come my way. Insights that may be of value to franchise purchasers and franchise companies alike.

It is hard to fit them all into this space so I will address this in a series of posts and hit the highlights:

• The Trademark - arguably the most important "asset" in a franchise system, the primary trademark is required to appear on the Cover Page and to be discussed in Item 13. Franchise systems should always make sure the correct PRIMARY mark is used on the Cover Page. It would seem that the primary mark should be one that is registered on the USPTO's Principal Register. I see FDDs that display a registered mark in Item 13 but it is not the one on the Cover Page. Is this because the "registered" mark is not the primary mark or because the mark on the Cover Page is the primary but unregistered mark? Either way it is confusing. Plus, franchise buyers should be more comfortable when the primary mark that they will do business under is registered.
• Business Experience - FDD Item 2 requires disclosure of the business experience or "job experience" of the the main officers and directors - but only for the last five years! Franchisors that tell us where the officers went to high school and add flowery business accolades reveal an amateurish knowledge of the requirements, may face push-back from franchise-registration-state-examiners, and, in some states, create an unwanted "technical" violation. This five-year limit, however, should not stop franchise buyers from investigating the officers and directors. In the age of the internet, there are many sources for the background of individuals and businesses.
• Litigation - FDD Item 3 deals with certain lawsuits that the franchise system (parents, predecessors and affiliates) and its main officers are or have been involved in (different disclosure time-frames apply to different types of litigation). Some lawsuit descriptions, however, end with the statement "This case was settled by confidential settlement agreement" -- meaning, the reader is not informed of the outcome of the suit. Since the 2007 adoption of the Amended FTC Rule, this practice is not permitted. According to the Rule, settlement terms must be disclosed regardless of whether the agreement is confidential (unless the settlement was entered into before the company started franchising or before July 1, 2007). Again for franchise companies: push-back from state-examiners and unwanted "technical" violations may result. For purchasers: press for the information that is required by Rule,

Enough for now!

Franchise Resources at Your Fingertips

So from a franchise news perspective - or a franchise news perspective that inspires me to write a blog post - it has been a slow summer. Guess we all need a break from the routine ... and slow news gives me more time to focus on clients ... and uh to swim and ride my bike!

Well this may be a good time to blow my own horn while passing on a valuable resource to you.

In addition to this blog, I maintain a website at www.fddlawyer.com and at www.ohiofranchiselawyer.com.

While this site talks about my background and services, it also provides a Resource Page that you may find helpful.

There are links to most franchise and business opportunity laws, state administrators, legal resources and franchise associations. In addition, there are articles written over the years by yours truly. Feel free to bookmark the page and take advantage of the resources ... and best of all it is FREE!

Enjoy the summer! I'm off for a swim.

Defend Trade Secrets Act of 2015 - Protection Goes Federal

As most of you know, franchise systems have secrets - trade secrets that is! Those "secret sauce" things or special procedures that make the essence of the product or service ... well special and secret. 

When handled properly, franchisors and other trade secret owners have been able to protect those secrets under state law. Now with the adoption of the Defend Trade Secrets Act of 2015 on May 11, 2016, that protection has gone federal. Departing franchisees who "go rogue" and take the secrets with them could be explaining their actions to a federal judge.

According to the Congressional summary that explains the law: "This bill amends the federal criminal code to create a private civil cause of action for trade secret misappropriation.

Specifically, the bill authorizes a trade secret owner to file a civil action in a U.S. district court seeking relief for trade secret misappropriation related to a product or service in interstate or foreign commerce. It establishes remedies, such as an injunction and damages. The statute of limitation is set at five years from the date of discovery of the misappropriation.

A trade secret owner may apply for and a court may grant a seizure order to prevent dissemination of the trade secret if the court makes specific findings, including that an immediate and irreparable injury will occur if seizure is not ordered. A court must take custody of the seized materials and hold a seizure hearing within seven days."

Of course, because they operate nationwide or world-wide, franchisors will be able to take advantage of the new law, adding to their arsenal of legal protections. Terminated and abandoning franchisees (and their employees) must be even more vigilant in guarding the secrets that they were given.

Reviewing the Defend Trade Secrets Act of 2015 is important for anyone involved in franchising.

Franchisees - Damages Warning: Lost Future Royalties

As I mentioned a few posts back,  I was invited to co-present at this year's upcoming American Bar Association's Annual Forum on Franchising.  The title of the presentation is "Show Me the Money!" The presentation focuses on monetary damages in franchise disputes. The essence of this post was one of the subjects of that previous post BUT I wanted to emphasize the issue for franchisees.

When you sign a franchise agreement and things don't go well, you may be in for more trouble than just a failed business. Every franchise agreement contains a term of years that the relationship is expected to last (5 years, 10 years, 20 years). Franchisors "expect" that the franchisee will pay royalties and other recurring fees during the full term.

Unfortunately, not all franchisees succeed. Some stop paying royalties, some just close the door, and others tear down the signs and try to compete. (I strongly recommend against the last one) In these circumstances, the relationship ends ... and the franchisor may have the right to collect ALL lost future royalties that it was expecting. Fairness aside, courts have supported the recovery of these lost future profits and royalties.

While this is a complicated legal area that requires further explanation (visit with your franchise lawyer for more info), here, in a nutshell, is what I said in the previous post:

• Franchisor Recovery - Lost Profit - Lost Future Royalties: Although case law in this area is not completely settled, when there is a premature termination of a franchise agreement (not the full term), many franchisors seek the balance of the royalty payments due to the end of the contracted term as damages. A number of courts have permitted recovery of these "lost future royalties," especially when the franchisee abandons operation and simply closes. Some courts permit this recovery upon any "material" breach by the franchisee (i.e. failing to pay royalties). In this instance, from the franchisor's perspective, the worth of the franchise is the total amount of royalties to be paid. However, some courts have denied this type of recovery or have limited it, depending on whether the franchisor actually brought about the termination (instead of just suing for the past due royalties) or has not deducted its own service costs during the balance of the term.

So franchisees BE WARNED - you may have to pay more than you earn. An alternative is to seek a fixed amount of damages to be paid on any early termination - known as Liquidated Damages. Some franchisors already provide for this or are willing to negotiate to add it. BUT, you must reach this agreement in advance of signing the franchise agreement.

Franchising and the FMLA - Employer's Guide

Without arguing over whose workers they are, franchisors and franchisees have one thing in common: Employees! Yes those pesky people who greet the customers, turn on the grills and ovens, flip the burgers, clean the guest rooms, deliver the food and make the business run like a business.

As we know, dealing with employees is an integral part of any business and it grows more complicated and more important as time goes on. To assist employers in the United States, the Department of Labor has published a new guide for one of those areas that has grown more complex: The Family and Medical Leave Act.
You can download the Employer's Guide to The Family and Medical Leave Act here.

Having handled a few FMLA matters from both sides of the employment relationship, I can attest to the complexities and nuances that can arise. Take a few moments to download this guide and give it a read before your next HR crisis emerges.

Here is what the DOL says about its guide: "This Employer’s Guide to the Family and Medical Leave Act is designed to provide essential information about the FMLA, including information about employers’ obligations under the law and the options available to employers in administering leave under the FMLA. The Guide is organized to correspond to the order of events from an employee’s leave request to restoration of the employee to the same or equivalent job at the end of the employee’s FMLA leave. It also includes a topical index for ease of use."

Tip of the Hat to Jon Hyman at Ohio's Employer's Law Blog for bringing this Guide to my attention.

Franchising Marijuana - Part Four - New Article

Some of the MOST popular posts on this blog have concerned franchising and marijuana. (See Part One, Part Two, and Part Three)

And now, a recent article in the American Bar Association's Franchise Law Journal gives rise to Part Four - Franchising a Marijuana Business: It's not Quite Mission Impossible.

Thanks to Shannon McCarthy (a partner with Miller Nash Graham & Dunn, LLP in Seattle, Washington) and Dawn Newton (a partner with Donahue Fitzgerald, LLP in Oakland, California) we now have the most comprehensive treatment of these subjects to date.

Shannon and Dawn both practice in states where some form of legalization has taken place - California has legalized medical marijuana and Washington has approved recreational use.

Their article is well done and thoroughly researched - and they are both experts in the area. But, despite the title (It's not Quite Mission Impossible), Shannon and Dawn outline so many current obstacles to franchising or licensing a marijuana business that it should have been titled "Mission Impossible 6."

The article pulls together in a much more complete fashion some of the posts that have appeared here  - Give it a read! Thank you Shannon and Dawn!

Franchising a Marijuana Business: It's not Quite Mission Impossible

Franchise Valuation through Damage Analysis

Recently I was invited to co-present at this year's upcoming American Bar Association's Annual Forum on Franchising (it is not until November but we get an early start on the materials that go into it). The general topic: monetary damages in franchise disputes; it got me thinking about my last post (How much is that franchise business worth?)

Why? Well many franchise disputes focus on the termination of the relationship and the damages to which one of the parties may be entitled. Central to this analysis is the value of the loss. But the real question is: which party is suffering the loss, the franchisor or the franchisee? Now this is a complicated area and far too complex to do justice here, but let's just touch on few damage remedies that may, when carried over to the "worth" of franchise, offer some guideposts.

Franchisor Recovery - Lost Profits - Lost Future Royalties: Although case law in this area is not completely settled, when there is a premature termination of a franchise agreement (not the full term), many franchisors seek the balance of the royalty payments due to the end of the contracted term as damages. A number of courts have permitted recovery of these "lost future royalties," especially when the franchisee abandons operation and simply closes. Some courts permit this recovery upon any "material" breach by the franchisee (i.e. failing to pay royalties). In this instance, from the franchisor's perspective, the worth of the franchise is the total amount of royalties to be paid. However, some courts have denied this type of recovery or have limited it, depending on whether the franchisor actually brought about the termination (instead of just suing for the past due royalties) or has not deducted its own service costs during the balance of the term.

Franchisee Recovery - Lost Profits or Fair Market Value: When a franchisee is wrongfully terminated, two approaches may be available: Lost Profits and Fair Market Value. In the most simplistic terms, future Lost Profits for a franchisee is the reasonable amount of profit (revenue less all expenses) the franchisee could expect to earn over the balance of the term based on reliable PAST sales and expenses date; while Fair Market Value is more complicated to calculate, think of it as "market" value - what would an arm's length buyer be willing to pay and a reasonable seller willing to take? Courts have approved both methods when solid evidence is presented. But franchisees cannot recover both and must elect one approach or the other.

So, as you can see, the "value or worth" of a franchised business may be in the eye of the beholder! But keep in mind that there are many NUANCES involved in these approaches - we can't cover them all here - and franchise owners and franchisors need to heed the advice found in the last post (How much is that franchise business worth?)

How much is that franchise business worth?

Happy March! The warm weather is just around the corner ... spring and summer are times when homeowners think it may be a good time to list their homes for sale or to jump to that new home. (Is this a real estate blog? ...wait for it ... I'll make the connection to franchising in a minute)

Usually, home buyers and sellers have a good idea of the VALUE of what they are buying or selling due to the very active and public real estate market. But what is the VALUE of that franchise business I want to buy or sell?

Of course the answer depends on whether it is being sold by the franchisor as a new franchise or by a franchisee who is cashing out after establishing and operating the business over a period of years. Either way wouldn't it be helpful to know the "market value"?

Now this type of analysis is above my pay grade but here are a few suggestions (in no particular order):

• Contact a Business Broker to see if they can help, especially for franchisees planning to list and sell. There are plenty of franchise brokers out there who are eager to give you a listing price;
• Visit with your Certified Public Accountant, especially if they have been handling your business affairs;
• Get a copy of the Business Reference Guide - a bit pricey at $155.00 but it has a wealth of information about business valuations, including popular franchises, and provides Rules of Thumb that will at least give you a starting point;
• Hire an appraiser - check out the Institute of Business Appraisers and the American Society of Appraisers for more information and to find a qualified appraiser;
• Ask franchisees who recently sold their business or ask a recent buyer from an established former franchisee - they may be listed in Item 20 of the Franchise Disclosure Document if the sale was within the last year before the date of the FDD;
• Finally, although the franchisor may be reluctant to provide historical re-sale info (due to various franchise laws and regs), you may want to ask anyway and see what you get.

These are just a few ideas - the important point is to get some idea of VALUE before you leap!

Quality Important in Selecting Franchise System

So I have not posted much lately because I was in Paris for a family vacation. OK I know that is not a good excuse but we all need some down time! As a consolation for my absence from the blogosphere, here is one of my best photos from Paris!

But we are back to business and I came across an article published by BlueMauMau that reports on a study conducted by FranchiseGrade.com: Study: Bottom Quintile of Franchisors Churn Franchises Three Times More than the Top.

"Churn" is the turnover rate for terminated franchisees - and the article indicates that: "The bottom 10 percent of bad franchisors have more than triple the churn of franchised stores from franchisor terminations of stores and ceased operations by franchisees than the top 10 percent, according to a 5 year research of Franchise Disclosure Documents by FranchiseGrade.com." This is a significant difference and one that all potential franchise buyers should take into account when deciding on a franchise system.

As a franchise attorney, I see many questionable franchise offering and implore clients to conduct thorough due diligence! There are too many ways to lose your money out there ... and while many systems ride the wave of "franchising is great," not all of them are successful and some do quite poorly.

Protect yourself - get a Franchise Disclosure Document, work with knowledgeable counsel, read some books about buying a franchise (like mine), and check out grading services like The Franchise Grade® Top 500 list - these are all low cost ways to conduct due diligence. Do not make up your mind until you have ALL the information.

Quality is important.

DIY Rant - Your Money or Your Life

Sorry but I have to rant - but my rant is at least related to my last post: Why Structuring Your Business Relationship is Important.

The "Do It Yourself" approach to forming a business entity (and, to some degree, in analyzing Franchise Disclosure Documents) is all the rage these days. I just file something online with the Secretary of State or State Corporation Commission and I am done. Easy, no legal fees involved, and I just saved a "ton of money."

So here is the rant: in the last five years, I have seen more incomplete, screwed-up, improperly formed entities than in my previous 35 years-plus combined. Why? Folks think they can DIY-it! And, this is a prevalent practice among franchise-operators trying to save a buck. Ladies and Gentlemen, this is not a home improvement project you can pull off the shelf at The Home Depot.

Why do you want an entity to begin with? To protect your personal assets and, in some instances, to enjoy certain tax benefits. If you screw-up the formation - by not creating the proper internal governing documents, not issuing share or membership certificates, not establishing the correct accounting procedures and the like - you may have just placed your personal assets at risk. In other words, your money or your life!

So do yourself a favor. That "ton of money" you think you saved could be peanuts if your personal liability is at risk for a major business reversal, personal injury or other business liability. If you are just forming an entity get yourself a good business lawyer; and do it right; if you formed an entity without a lawyer, get yourself a review by a good business lawyer. Gaining protection from a properly formed entity is your best "life" insurance policy that has a one-time premium payment! Get one.

See you at The Home Depot.

Why Structuring Your Business Relationship is Important

With the holidays behind us and football season coming to a close, I can finally turn my attention back to you, O'faithful reader! Being an avid football fan, and a former-Eagles' fan (Chip Kelly ruined my season but at least I am not a Browns' fan), I could not help but follow the recent NFL coaching-shuffle. And this takes me to the point of this post - be careful who you go into business with and what the structure of the deal is!

This word of caution is not just directed to the franchise system you select but also to choosing your "business partners."

Too many times folks focus their attention on the due diligence that goes into selecting the right franchise (I wish there were more) and overlook their internal business structure. Just in the last few months, I have seen this with a number of clients, and individuals I am assisting as a mediator.

First, I suggest that if you can avoid having "partners" or fellow shareholders/members, avoid them. Going it alone may involve greater risk but has greater rewards and fewer conflicts.

Next, if someone wants to "invest" in your franchise-entity, make them a lender rather than an owner. There are ways to reward people who want to invest in you without giving them a piece of the action!

If you insist on "partners," make sure you visit with knowledgeable and experienced legal counsel to determine the best entity, the best structure, and the best exit strategy (in a buy-sell agreement that is incorporated into your entity documents). If things don't work out at least you have a plan.

I will admit that I was excited to have Chip Kelly come to Philly but in hindsight I would probably be happier if Andy Reid had stayed ... along with all the great players Kelly axed! Now we are stuck with his team. Good luck 49ers...