Finance Resource

John Hotchin admits Nathans Finance documents wrong
Former director John Hotchin admitted Nathans Finance got its offer documents wrong and that related party loans were advanced despite the fact they could not be paid back on time, a court heard yesterday.Hotchin, 51, who is serving…

Read more on The New Zealand Herald

Same Person Forged Billions of Dollars Worth of Mortgage Documents for Bank of America, Wells Fargo, U.S. Bank and …
The Washington Post notes :   In Georgia, an employee of a document processing company, Linda Green, for years claimed to be executives of Bank of America , Wells Fargo, U.S. Bank and dozens of other lenders while signing off on tens of thousands of foreclosure affidavits. In many cases, her signature appeared to be forged by different employees.   Green worked for a foreclosure document company …

Read more on Zero Hedge

South Canterbury Finance documents published
In a large Friday afternoon information overload Treasury has released a deluge of documents about South Canterbury Finance’s participation in the recently expired Retail Deposit Guarantee Scheme. And this is just the beginning with more papers expected both from Treasury and the Reserve Bank. read more

Read more on New Zealand’s National Business Review

Millions of people dream about owning their own business. Having the independence that being your own boss brings, the security that no one can fire you, enjoying a good income – and for the most successful – the accumulation of wealth and prosperity. Unfortunately, the cards are stacked against a new small business making it big – or making it at all. An endless stream of problems makes competition from large, sophisticated chains too intense. Many new start-ups end as failures.

Buying a franchise represents a different approach to starting a business.  For an upfront franchise fee plus ongoing royalty payments, the parent company teaches its business model and methods to the franchised-operator who shoulders all operating and financial responsibilities of the outlet. Some statistics are impressive: it is said over 40% of all U.S. retail sales are through franchised establishments. While franchise giants like McDonalds, KFC, H&R Block and Radio Shack are familiar, household names, franchises are available in a wide range of industries. The list of 3,000-plus companies selling franchises span over 100 different industry categories.

American Dream … Or Nightmare?
But just as franchising represents a chance to get rich, it’s also a chance to get stung. An alarming number of franchised operators make less than the minimum wage, working seven days, sixty to eighty hours a week, pursuing an expensive and elusive American Dream that turns into a nightmare. Since the ongoing franchise royalty payment comes right off the top, as a percentage of gross sales or a fixed minimum amount, the franchise company gets an assured revenue stream, even if its franchised units are operating unprofitably and are sold over and over again to new, unsuspecting buyers. The internet is filled with comments of the many people who lost $250,000 and more on concepts like eBay Drop off stores (iSold It), 30 Minute Fitness concepts (Curves), The UPS Store, etc. Yet many of these companies continue to sell and resell franchises over and over again. How do they accomplish that? Because there are enough people who think they can “believe” their way to success, even with a concept or business that’s not working in the marketplace. As discussed below, in many cases franchise investment decisions are incredibly based on emotionalism, not on business logic or even common sense.

Ownership And Being Your Own Boss?
Pride of ownership and being your own boss are highly touted phrases in franchise recruitment ads. But these are more fantasy than reality. Although you get all the financial exposure, headaches and stress of business ownership, what do you really own? A franchise owner is merely licensing a trademark (or service mark) from a company that dictates every detail of business operations. So the real boss isn’t you, but the company that sells you their franchise rights . . . and sea of franchise obligations.

Equity Build up?
But at least you’re building up equity, the ownership value of the business as a going concern beyond your investment of money, to compensate for all those years of hard work and long hours – right? Wrong – at least in the world of franchising. The franchise company reserves rights to acquire your entire business at below wholesale prices if their contract is not followed precisely. The acquisition rights provide for predetermined asset-based valuations, like book or liquidation value. These valuation methods provide bare minimum compensation (the used value of some file cabinets, office furniture, equipment, etc.) and are not generally used to determine the selling price of any business.

Absolutely no compensation is paid for established goodwill, the value of a business that is generating $X in profit or cash flow every month after years of effort, investment and expense – thus eliminating the most valuable ownership asset. Of course, you may be able to sell your franchise to a third party for a sales price that includes an earnings-based valuation. But that’s possible only if:
(a) you can find a buyer who is willing to live within the complexities of a franchise relationship, and
(b) you happen to own a franchise that’s showing healthy profits.

What follows is a bottom-line franchise checklist and tips compiled by franchise attorney and franchise expert, Mr. Franchise, based on reviewing over 500 franchise offering circulars and twenty-eight plus years of experience in the franchise industry – including ownership of a very successful franchise. These factors to consider in making a franchise investment will help you eliminate 95% of the companies you are considering. Then, you can concentrate your efforts on the 5% “cream” of the crop” companies that may deserve consideration. This franchise checklist assumes you’re suitable for and willing to live within the confines of a franchise relationship. It also assumes the franchise company:

(1) has itself successfully operated the concept being franchised for at least five years at multiple locations;
(2) is not plagued by franchise litigation and franchise lawsuits from disgruntled franchise owners;
(3) does not have unusually high franchise attrition rates (owners who have “left the system”); and
(4) has a balanced, fair franchise contract.

SOLD It – An American Dream That Turned Into A Nightmare
An example of a franchise company in trouble that failed to meet basic threshold standards is iSOLD It, an eBay drop-off store franchise. The company started its one and only company-owned store in November of 2003. Just weeks later, on December 10, 2003 they filed an application to sell franchises. The California Department of Corporations didn’t say “What are you thinking? You’ve only been in business a couple weeks, how can you even consider selling franchises?” Nor did they require this be disclosed as a risk factor on the cover page of the Franchise Offering Circular, as it should have. Disclosure responsibilities ultimately rest with the company (and its attorneys), and this will become one of many issues in future franchise litigation.

Instead, the Department simply collected its $675 filing fee and issued an order declaring the franchise registration effective the next day – on December 11, 2003. Then the magic of franchise marketing  took over. By 2006 the company had nearly 200 franchised drop off stores in operation and was touted by Entrepreneur Magazine as #1 in their list of “Top New Franchises for 2007” and #17 on their “Hotter Than Hot” franchise list. Entrepreneur Magazine, which requires franchise companies to submit their FOC’s (Franchise Offering Circulars) for supposed review each year before they’re listed, didn’t consider the high attrition rate (franchise owners leaving the system) or the fact that the audited financials in their FOC showed the company hadn’t operated profitably since 2004 as serious negatives and awarded iSold It the #1 listing for Top New Franchises of 2007. How did all of this happen? It’s yet another bizarre reality in the world of franchising.

The franchise company’s audited financial statements for the year ended 12-31-05 showed an operating loss of $1.1 million. Nine months later, in September of 2006, the net operating loss mushroomed to over $4 million.

In its November 3, 2006 Franchise Offering Circular, the table in Item 20 disclosed a total of 10 franchise owners leaving the system, yet a hand count of Exhibit D-3’s “Former Franchisees” revealed a significantly different number – 44. A similar “discrepancy” exists about franchise transfers. Item 20 says 12 transfers whereas Exhibit D-3 discloses 27.

In a long overdue letter distributed to franchise owners on April 5, 2007, CEO Ken Sully painted a dire picture of an American Dream that had turned into a nightmare. Mr. Sully’s letter admitted the company has not been profitable since 2004 (according to the audited financials, the company showed its one and only operating profit of $356,286 in 2004 before the precipitous downward spiral of 2005 and 2006). Over 60 franchised stores have closed and many more are struggling for survival. Mr. Sully observed “Tragically, many individuals who believed passionately in the potential for the category have lost sizable investments, including homes and retirement savings.”

Lost homes and retirement savings? How could such a travesty happen? I counseled a number of persons considering an iSold It franchise and warned all of them against the investment. Fortunately, they followed my advice. The concept was never proven in the marketplace before franchise efforts began, violating the most basic Franchise 101 precept. I also felt the management team lacked strong franchise credentials and the five-day training program was woefully inadequate. Finally, the franchise company was operating increasingly in the red and had a high attrition rate (owners leaving the system). It didn’t take a lot of brain power to see this was an accident waiting to happen. I predicted the bubble would burst and, sadly, it did.

Common sense could and should have prevented so many people from losing so much. Unfortunately franchise sales persons appeal to emotions (passions and potential, to use Mr. Sully’s terms) and strive to keep common sense and business logic out of the buying equation. If a franchise company is able to obtain a ranking on a media list, the sale is even easier. Reprints of high rankings on lists, like Entrepreneur Magazine, are included in the package given to franchise buyers, who are lulled into a false sense of security and begin to stumble over each other in a rush to sign up before someone else takes their desired territory (another favorite closing technique used to sell franchises).

iSold It! amended its FOC at the end of May, 2007 to add some long overdue risk factor language to the cover page of its Franchise Offering Circular. Hmmmm… maybe they read my comments above and did a little research. The new FOC cover page risk factor language says their “franchise system is still new and unproven.” That’s very interesting. How can they say a franchise system, that’s approaching its fourth anniversary, is “still new?” Maybe they’re looking at things from a ‘how old is our universe’ perspective? The word “unproven” is another play on words. The system is most certainly proven in the sense that many people, to quote Mr. Sully, “have lost sizable investments, including homes and retirement savings.” So why not use this quote directly in their Franchise Offering Circular? Answer: can’t sell any franchises that way.

In an August 31, 2007 Business Week article, CEO Sully claimed it wasn’t necessary to disclose these risk factors in the FOC. His reasoning: “We told everybody that this is sort of like the wild, wild West” he says. “It’s a brand-new concept and nobody knew for sure where it was going.” Disclosure was added to the UFOC recently, he says, “because of the number of stores that weren’t understanding the complexity of the business.” Hello? You don’t tell your franchise investors after the fact what you were required to disclose in the FOC before they bought so they could make an informed investment decision. That’s the purpose of franchise disclosure laws. And claiming written disclosure of risk factors in the FOC is not necessary if a prospective buyer hears a salesman’s verbal wild, wild West story ignores franchise disclosure responsibilities and is really an admission the company failed in this regard. With its amended FOC, the company incredibly continues marching forward with franchise marketing efforts.

Now, let’s consider the franchise checklist and factors to consider before any leap into franchising.

INDUSTRY TREND
Is the franchise in a cutting-edge industry that is doing well currently and is projected to do well in the future despite any economic slowdown? Education and home-improvement services are stable categories. Food is over-saturated generally and, except in exceptional circumstances, is not worth the high investment, long hours, headaches and marginal income.

TOTAL INITIAL FRANCHISE INVESTMENT
In general, don’t expect a franchise that requires a five-figure initial franchise investment to produce a six-figure income. As with most things in life, you get what you pay for. On the other hand, don’t assume a six-figure investment will lead to a six-figure income level. Be realistic and conservative. Is the total initial franchise investment range (including working capital) $125,00 or less; and the maximum investment less than $200,000? You can find solid companies in this investment range if you’re willing to look around.

Don’t forget to consider long-term financial commitments, particularly the real property lease (see discussion below under “LEASING AND LOCATION”). Also, the working capital estimate (called “additional funds” in Item 7 of the company’s franchise offering circular) does NOT cover operations up to the break-even point. It only covers a short initial phase (usually only three-months) of operating costs As the break-even point (where revenues cover all operating costs) may not happen for one, two or more years, knowing only what it’s going to take to get you through the first 90 days is not helpful – in fact it may set you up for financial suicide. In many cases, reaching the break-even point can require more reserve funds than the total initial capital investment. Don’t ever forget the name of Item 7 in the Franchise Offering Circular: “Initial Investment.” If you don’t have enough reserve capital to reach the critical break-even point, your entire investment will go down the drain and franchise failure occurs.

One franchise owner in a relatively low investment and low operating cost window cleaning franchise said his biggest surprise was how long it actually took his franchise to be profitable. Going in, he thought it would take 12 to 15 months. It ended up taking twice that time. Fortunately, he had enough reserve capital to make it there, but declined to say what his actual franchise profits or income level were once he reached “franchise profitability.” If you’re operating just above the break even point and making less than minimum wage, is that anyone’s definition of success?

REAL BUSINESS
Is this a legitimate retail business, as opposed to a “work out of your home” operation? The vast majority of work out of your home concepts produce marginal income at best.

FRANCHISE MANAGEMENT EXPERTISE
Does the management team of the franchisor (the company selling you the franchise) have executives with demonstrated past achievement and experience in operating a franchise company (not just persons who have sold franchises)? If not, this is a big RED FLAG. Many companies enter franchising and fail to realize they are in a brand new business – one requiring entirely different management skills and abilities to navigate franchise relationships. A seasoned franchise management infrastructure must be in place. If the franchise management team lacks strong franchise credentials, or does not receive ongoing advice from qualified individuals, you might as well take a trip to Las Vegas with the money you’re intending to invest. Your chances of making vs. loosing money are roughly equal.

NORMAL WORKING HOURS AND DAYS; SUFFICIENT FRANCHISE INCOME LEVEL
Will the nature of the business allow you to work a normal five-day, forty-hour workweek? Life is too short for the seven-day, sixty to eighty hours a week, workaholic lifestyle that destroys health, family and pocketbook. Financially, we’ve calculated the true hourly rate for franchise owners who work these workaholic hours and discovered many are making far less than the minimum wage. One couple who operated a $200,000 fancy pizza franchise in an upscale mall were shocked to discover they were making fifty cents an hour each. Hardly an income level to recoup or justify the franchise investment. Many more fast-food franchise operators make even less, or operate at a loss until their funds, retirement savings, homes, etc. are exhausted. Buying a franchise in a non-food industry doesn’t necessarily improve the franchise profit picture. In a 2006 article “Mail Boxes Etc. Owners Fighting UPS Conversion,” a Mail Boxes, Etc. franchise owner who operated his franchise since 1993 reported profits for a typical MBE store like his were $16,000 per year after paying royalty and advertising fees to the franchise company. That calculates out to about $8.33 per hour for a forty-hour work week, approximately the wage of an entry fast-food worker.

Another major shortcoming of disclosures in the Franchise Offering Circular is not telling you how much money the franchises in the network are making. Instead of answering what is the most important question in a franchise investment decision, the franchise disclosure laws make this “optional” for the franchise company to answer or not. If they do answer this critical question, it will be found in Item 19. But don’t hold your breath – more than 90% of franchise companies “decide” not to answer this question. It’s another bizarre reality in the world of franchising. Although they collect complete monthly (and in many cases, weekly) financial profit and loss statements from their franchise owners, and know exactly how much their franchises are making (or losing), more than 90% decide not to share this information before you buy one of their franchises. A number of franchise salespersons have told persons asking this question: “the franchise laws don’t allow us to answer that question.” Nothing could be further from the truth.

And just because you’re a business executive making a 6-figure income now, don’t assume this income level will be duplicated in a franchise investment just because the company “approves” your application. One such executive, despite a plethora of negative feedback from current and past franchise owners who’d lost everything, marched forward with her franchise investment in a 30-minute fitness concept. Despite her 6-figure income, she didn’t invest a dime in professional franchise evaluation advice and stated she was taking a leap of faith, hoping to build her wings on the way down. Build her wings on the way down? Sound’s (and is) crazy, but this happens all the time. Due to the ploys of the franchise salesperson, too many franchise investment decisions are based on emotionalism. Prior business skills, business sense (and even common sense) are short-circuited. Needless to say, if this business executive made a similar investment decision for her corporate employer paying the 6-figure salary, she would be promptly fired.

MINIMUM NUMBER OF EMPLOYEES
Can you operate the franchise business with 6 or fewer employees? Managing dozens (or in the case of some fast-food operations – hundreds) of minimum-wage teenagers who are constantly quitting or simply not showing up for work is a royal pain in the ….. Well, you know what we mean.

LEASING AND LOCATION
For most retail franchises, the triple net lease of the location is the biggest financial commitment, larger than the total franchise investment. Yet, the typical real estate lease and its ramifications are not required disclosure in any Franchise Offering Circular (FOC). For example, an estimate that you’ll need 2,000 sq. feet of space with expected rental of $5 to $10 a foot per month is normally disclosed in the Franchise Offering Circular’s initial investment table as Leased Real Estate $10,000 to $20,000. A footnote to the investment table may say “assumes 2,000 sq. ft. at $5 to $10 a foot.”

But, that’s only the beginning of a much longer story. The lease is normally a 5 to 10 year triple-net lease. So, the financial commitment made when the lease is signed is at least $600,000 (at $5/foot for 5 years) to $2,400,000 (at $10/foot for 10 years). And this doesn’t include substantial, additional obligations to pay all of the landlord’s yearly property taxes, insurance, common area operating expenses, etc. With hundreds of thousands (or even millions) of dollars in financial obligations at stake, personal guarantees and other risks, more than just a warm, fuzzy feeling that everything will work out is necessary.

Key questions to ask here:

(a) is the franchise you’re considering one that can be operated in a low rent commercial business zone? Avoid franchises requiring the costly expenses and triple-net leases of a visible retail storefront and the extravagant rent associated with areas of high foot traffic, like shopping malls. You’ll sleep much better at night.

(b) What’s your total financial commitment under the lease?

(c) Do you have sufficient liquid assets (or a willing, sufficiently liquid third party guarantor) to meet the landlord’s lease qualification standards?

If you don’t, you might as well forget about investing in the franchise. Or even worse, getting involved in a questionable franchise and business model, then realizing you’ve made a big mistake – and discovering you’re on the hook personally for a $500,000+ lease obligation.

A related real estate variant is securing a lease with a sufficient term (with renewal options) to recoup your investment and make a profit. In July, 2005, an attorney in her mid-forties purchased an existing ice cream store franchise for $375,000 believing it to be a “once-in-a-lifetime opportunity.” Trading her briefcase for an ice cream scoop, she attended the company’s 11-day Ice Cream University and assumed operations of the ice cream store. Turned out it was an opportunity – but only to inherit a store with numerous problems. These problems included (but were not limited to) a lease that would expire the following summer and a landlord who’d previously announced the lease would not be renewed. Rather than pay the $100,000-plus in relocation costs, the attorney returned to the practice of law, but is still paying off $350,000 remaining on the loan taken out to buy the once-in-a-lifetime franchise opportunity. Although there’s a franchise lawsuit pending, it’s yet another case of “franchise fever” – this time attacking a professional no less. Who would ever commit to paying $375,000 for an existing retail franchise without checking out the l-e-a-s-e? Sound’s like another bad attorney joke, but I can guarantee she’s not laughing. Business fundamentals were ignored or forgotten in the rush to acquire the opportunity of a lifetime. And I’m willing to bet not a dollar was spent on competent, pre-investment franchise advice.

IMAGE AND LIFESTYLE
How does flipping burgers, scooping ice cream and cleaning restrooms fit the image of what you want to do for a living? Investing in a franchise will be the most important financial and psychological decision you ever make. Many prospective franchise owners fail to realize they’ll be wearing virtually every hat at some point, from salesperson to bad-debt collector, from firing employees to bathroom janitor. The franchise owner is usually the first one to arrive in the morning – and the last one to turn out the lights late at night. And you’ll need to forget about corporate perks like paid vacations, paid holidays and sick pay. In their place, substitute financial pressures, unexpected events and money draining out of your savings and retirement accounts. Does the typical working day and responsibilities of the franchise you are considering fit your personal image and desired lifestyle? You can experience some of this BEFORE you invest by working for a couple weeks in an outlet owned by one of the existing franchise owners.

TRUE FRANCHISE VALUE
Buying a franchise from a “blue chip” franchise company that has spent decades and hundreds of millions on advertising to develop their brand can make a lot of sense. These companies have “true franchise value” that compensates for the long-term disadvantages of ongoing royalty and advertising fund payments. Often these additional payments literally mean the difference between earning a profit and operating at a loss. In unknown franchise chains with little or no brand recognition, you the franchise buyer are building their brand from scratch, and are saddled with severe, long-term competitive disadvantages.

In these unknown franchise chains, you have to ask yourself a simple, common sense question. What value is the company giving you that you couldn’t learn on your own by working at one of their locations as an employee for a couple months? Franchise truth be told, what most unknown franchise companies are selling is just a business opportunity – teaching you how to get into a new business venture. But unlike a business opportunity seller that charges a one-time fee to help get you into business, they call it a “franchise” and charge ongoing royalty and advertising fees like they’re a McDonalds or other blue chip franchise company.

The reality is they’re not a McDonalds type franchise – not even close to one. In the majority of these lesser-known franchise chains, you’d be much better off starting an independent business on your own. You can learn most or all of their so-called “secrets” in the franchise interviewing process and by talking to (and possibly working a short time for) existing franchise owners.

FRANCHISE PROFITABILITY & “SUCCESS”
Dr. Timothy Bates’ study released in 1993 by the Entrepreneurial Growth and Investment Institute in Washington, DC (and another study published in 1996) was the first to compare start-up costs, franchise profitability and franchise failure rates for franchised vs. nonfranchised firms. In his analysis of some 7,270 firms over the test period, Dr. Bates found that startup capital for a franchised business averaged $85,293 compared with average startup capital for nonfranchised firms of $30,156. In 1987 nonfranchised firms reported average pre-tax net income of $19,744 as compared to a loss of (-$1,548) for franchised firms. Dr. Bates concluded “Despite their larger revenues, much better capitalization, and their supposed advantages of affiliation with a franchisor parent firm, the franchisees lag behind cohort young firms in profitability and rates of survival.”

The franchise companies ignore both studies by Dr. Bates, pretending they never happened. Instead, other techniques are employed. For example, some franchise companies use misleading success statistics to sell their franchises. Their promotional materials say franchises generally enjoy a 90% success rate, compared to less than 20% for independent firms. These figures are based on unverified information supplied thirty years ago by a select, non-representative group of franchise companies. A full third of the companies receiving “questionnaires “ elected not to participate. There was no verification of any of the information supplied by the franchise companies, not even random, spot checking. Nor was any effort made to identify franchise companies who, along with the franchise owners in their chain, had gone out of business.

Even more recent “studies” saying nine out of ten franchise owners (90%) consider their franchise to be somewhat or very successful also suffer from serious methodological flaws. These were simply telephone surveys of franchise owners who were still in business and asked to say (with absolutely no definition of the term “successful”) whether they felt their business was “very unsuccessful,” “somewhat unsuccessful,” somewhat successful” or “very successful.” Franchise owners who had gone out of business or bankrupt were not included in the survey.

Even if terms are defined and a representative sample obtained, franchise owners can be a quirky group. Hence the need, as in Dr. Bates’ studies, for review of financial data. I remember evaluating an existing franchise for a client. I asked the current owner of the franchise if his business was successful. He said it was very successful. But his financial statements revealed a different picture. He’d never taken a dollar out of the business for himself, never made a profit in two years of operation, and was on the verge of bankruptcy. Another owner of a bakery franchise, interviewed by Business Week, says being successful in franchising means “adjusting your definition of success.” He says he makes a profit, but declined to say what it is, or if he’s ever recouped his $250,000-plus initial franchise investment. Incredibly, he insists he’s in business “for lifestyle reasons, not profit reasons.” Huh? Probably a quote from the company’s franchise recruitment materials. In the world of franchising “success” and “profitability” are very subjective terms.

FRANCHISE BROKERS WHO FIND YOUR PERFECT MATCH?
Does the franchise you are considering have its own in-house marketing department, or does it utilize outside franchise brokers? The use of franchise brokers is a definite red flag. First, it indicates the franchise company is not very serious about who it lets into the franchise network, or even worse, they’re desperate to sell franchises. Second, franchise brokers receive a substantial commission up to 50% or more of the franchise fee you’re paying the franchise company. Franchise Broker Realities: (1) Their service is definitely not “free” despite these and other similar misrepresentations. It’s really common sense – how could anyone offer a “free” service and survive in business? Unfortunately, the common sense part of the brain tends to short circuit when the franchise brainwashing process begins. The simple truth is if you buy one of the franchises they’re hawking, your money goes to the franchise company, then into the broker’s pocket. If anyone ever calculated how much time they spend to collect their $15,000 or $20,000 commission, it’s probably a lot more than a brain surgeon earns. (2) Franchise brokers definitely do NOT have your best interests in mind. They will do or say whatever they have to in order to close a deal and earn their commission.

Many franchise brokers claim they will help you find a franchise company that is the perfect match for you. In the beginning it sounds good. There’s some personality testing and review of your personal finances. At the end of the day, it turns out they only represent (and steer you towards) a handful of small franchise companies you’ve never heard of before. A detailed analysis often reveals these highly touted franchises produce mediocre or even below minimum wage financial performance. Yet franchise brokers don’t mention this, and individuals continue to rely on their recommendations, believing the broker represents them. Nothing could be further from the truth.

Also, many franchise brokers call themselves franchise consultants. A franchise consultant is usually an independent adviser who offers advice to others (usually franchise companies or firms that want to franchise their business) for a fee. This makes their advice more impartial in theory as long as they are not compensated by third parties. Because they are not legally required to disclose actual or potential conflicts of interest, it’s important ask questions. For example, if you’re using a franchise consultant who is recommending the “best franchises,” are they paid anything by the companies on their list? This could be a commission, kick-back or consulting fee. As mentioned, many franchise brokers call themselves “franchise consultants” to hide their true identity. So, make sure if you’re dealing with a franchise consultant, he or she is not really just a franchise broker in disguise.

FRANCHISE DISCLOSURE LAWS
The franchise disclosure laws, while requiring franchise companies to give you certain, limited information, don’t come close to protecting your interests. For example, as discussed above, Item 7 of the Franchise Offering Circular only requires an estimate of additional funds for 90 days as part of the investment information. But economic reality is you need to know the additional funds you’ll need to reach the break-even point, which can be years away, or your entire “initial” investment will go down the drain. You’d think this type of information would be required by franchise disclosure laws, but it’s not.

FRANCHISE REGISTRATION LAWS
Don’t ever assume that because a company has registered its Franchise Offering Circular in your state, someone at the state has approved or reviewed the document in your favor. Franchise registration is obtained by simply forwarding documents and paying a filing fee – period. In most cases, franchise offering circulars are given an extremely limited review to ensure state-specific disclaimers are present.

I remember filing a registration application for a new franchise company in a state with a reputation for being one of the “toughest” franchise registration law states in the country. After the three-week review period set forth in the statute had gone by, and not hearing anything, I called the examiner assigned to the application. After looking through his files, he finally found my client’s offering circular and application. He apologized for entirely misplacing the file and promised to immediately review the application and call me back. Ten minutes later, he called to say he’d finished and was making the registration effective that day. Ten minutes of review and the franchise company was given the state’s green light. This is not an isolated case – it happens all the time.

WHAT STANDARDS MUST A FRANCHISE COMPANY MEET TO SELL FRANCHISES; ARE THERE ANY REQUIREMENTS TO FRANCHISE A BUSINESS?
Incredibly, the answer is – none. There are no minimum standards or requirements to franchise a business except preparing a Franchise Offering Circular. It’s yet another bizarre reality in the world of franchising.

You and I could have no background in any business, form a new corporation or LLC, capitalize it with only $1, put together a Franchise Disclosure Document and file it with any franchise registration state. While the offering may be subject to an impound or escrow requirement because of the low capitalization ($1), we’d still get “registered” and be able to sell as many franchisees as we want.

In these 14 franchise registration states, we may not be able to receive any money until each franchise actually opened, but simply posting a bond would alleviate this difficulty in the franchise registration states. And in the vast majority of states there are no franchise registration laws, so we’d be able to sell franchises and collect fees with impunity once we compiled our Franchise Offering Circular. The federal FTC Franchise Rule doesn’t protect against this risk either – it only requires disclosure (i.e. provide a Franchise Disclosure Document) and has no registration component or minimum standards for franchise companies.

Basic investor protections and requirements found in both federal and state securities laws for over 50 years were never carried over to franchise investments. While most non-blue chip franchise companies could never even qualify to sell you a single share of stock in their company, they are entirely free to collect unlimited franchise fees, ongoing royalties, equipment and other purchases, as well as cause you to incur financial obligations totaling hundreds of thousands of dollars, or even millions in some cases. This isn’t information you’re likely to find in the glowing articles about franchising and franchise companies prevalent in the media.

CLOSING REMARKS
Remember, you are the only guardian when it comes to your franchise investment. It’s definitely an environment where the phrase “Buyer Beware” applies. So, before you sign on the line and make what will undoubtedly be the most serious financial and emotional commitment of your life, get all the facts and figures.

One couple I counseled after-the-fact, invested $2 million in a new franchise company. The contract they signed gave them no right to terminate, no matter what the franchise company did or didn’t do. Of course, the contract gave the franchise company unlimited termination ability, a right it had exercised. The franchise company’s management team had no one with experience in running a franchise company. Incredibly, the couple had not spent a dime on legal or business advice before investing $2 million. The once friendly franchise company had transformed into a formidable foe and was poised to take over their franchise. Sadly, this happens too frequently in franchise investments. Decisions are made on fuzzy feelings and emotionalism. In an effort to save a couple thousand dollars, franchise investors risk homes, retirement savings, everything they have. Then they scratch their heads in amazement later on after inevitable and often horrific problems develop, wondering how they could have been so nearsighted.

Another indispensable level of inquiry is whether you’re getting true franchise value and whether you’d be better off doing the business on your own. In the overwhelming majority of franchises touted by unknown companies, franchise value isn’t there and doing the same thing independently makes better economic sense and actually decreases the risk of failure.

Finally, and this applies to franchise investments as well as investing in any business venture, develop a plan to succeed but also plan a franchise exit strategy that minimizes financial risk in case things don’t work out. Both plans need to be thought through before the investment is made. Don’t wait until problems develop to start thinking about a franchise exit strategy – by then it’s usually too little, too late.

For more information, visit the Franchise Foundations Website.

© 1990-2008, Kevin B. Murphy, B.S., M.B.A., J.D. – all rights reserved

Financial Planning

Estate planning is an area of our Finances that is probably the least exciting, and often the most over looked. 

 

Here are the Four Estate Planning documents you must have.

 A Will

 It’s been reported that each year over a million Americans die without a will. If you have a will, then you get to choose who receives your assets and cash, who becomes a guardian to your children, and who gets to look after your pets. If you want to give half of your money to charity and half to your church (providing your spouse agrees!) then you can specify this in your will. By not having a will, you are letting the state government make these decisions for you.

 Many people believe that if they have no kids and are married, then all of their assets go to your spouse. Not necessarily. Dying “intestate” (without executing a valid will) means that your estate will be distributed according to state law so your spouse may have to split your assets with your parents.  The only way to prevent this confusion is to have an executed will.

 Wills are cheap and some are available online, although I would recommend seeing an Estate Planning attorney to ensure that you have all bases covered.

 

 

A Living Will

 

You need to have one of these in place should the worst happen to you. For example, you are in a car accident and, as a result of your injuries, you are left in a vegetative state. A provision in your living will will state whether or not you want to be kept alive by a respirator. If you express that you do not, then the hospital legally cannot keep you alive by the use of one. Once the doctor comes to the conclusion that you will not recover from your illness, your living will comes into effect and the doctors follow the choices you made when executing the document.

 There are many advantages to executing this document – upon your injury/diagnosis, your spouse does not have to make tough decisions in a time where they are not in the right state of mind to make them; there are no family arguments pertaining to what care you should receive, and you control what happens to you even though you are not able to in the moment.

 

 

 Power of Attorney for Health Care (POAHC)

 

This is like a living will but it is used before a living will would come into effect. Should you have a heart attack and fall unconscious, or suffer a blow to the head and not be able to talk, your “agent” (person you designate in the document to make the decisions for you) will then have the power to decide what treatment you should have. For this document to become effective, your injury/illness needs to be one where you cannot specify the treatment you desire, but it cannot be an injury/illness that has been determined by a doctor will not get better.

 It’s important to discuss this document with your assigned agent so they know what treatment you would like in certain situations. For example, let them know if you do not want a blood transfusion or if you do not want to receive other people’s organs in surgery. Chances are you won’t have an opportunity to tell your doctor when the time comes.

 

 

Power of Attorney for Property (POAP)

 Like the POAHC, this one pertains to any type of property you own. Should you fall unconscious and need to sell some assets to pay for medical bills, your assigned agent has the power to do that now that you are incapacitated. They also have the power to refinance your house, sell all of your stocks for cash, and buy you the best nurse money can buy – providing all these things are done for your good.

 

 Caution:

 Another document that is sometimes mentioned with these documents, and a lot of times sold to people, is a Living Trust. Not all people need these, unlike the above-mentioned documents, so be sure to discuss the pros and cons with a reputable Estate Planning attorney to see if you need one of these documents.

 

Are you loaded up till your neck with your accounting work? Looking for a rescue operator? Accounting outsourcing services comes as a problem saver for you. Generally, workload increases at the time of tax season. This particular time brings tensions and worries about filling the taxes on time. It is mandatory for every accounting firm to balance all the accounts before filling taxes. Accounting outsourcing services tends to take you out of a difficult maze. The main aim of this service is to save you from problems that may crop up during tax sessions.

A variety of accounting work needs complete concentration, as slight negligence can lead to serious problems. Invoice generation, financial statements, balance sheets, profit and loss account, trial balance, pay roll processes and many other things have to be maintained with utmost care. All these financial documents act as the face of your company. And if it is not appropriate then you are sure to land up in quandary. Everyone knows that landing in problems at the time of tax filling session can waste a lot of important time. Outsourcing these services will save your money that would have been wasted in hiring a proper staff for managing such accounting tasks.

Accounting Outsourcing Servicesenables you to cut down the extra cost that is spent in managing a specialized staff for it. It is quite obvious that you will not keep a single person for managing these accounts. House allowance, gratitude, funds, bonus, handsome salary and advances are some of the ad-on that a staff gets. Just imagine that if you don’t have to give so much and still your work is done within less period of time. It will be one of the best “value for money” deal for you. This is one of the benefits accompanied with outsourcing services. On the other note, it will also improve the financial condition of your business as you save a lot.

Efficiency is required in managing and maintaining all the accounting documents. Outsourcing helps in managing other departments of your business that will reap benefits for you. Another positive point in outsourcing your accounting work is that professional at such firms has a knack of handling these matters. They are well qualified to perform this task and concentrate on these things only. Usually, handling outsourcing work enables them to handle these tasks only. They are specialized in handling such work and this efficiency is marked in their work.

The demand for outsourcing has been increasing, since this concept came into existence. Because of its advantages, outsourcing services has established their firm stand in the matter of handling accounting and related works. Its need increases especially at the time of tax session, as every company wants their accounts should tally and appropriate tax should be filled. Accounting outsourcing service has become mandatory for the over-burdened accounting firms. In fact, outsourcing firms complete the work in much less time as compared to the in-house staff.

Working for a busy translation agency, I have had the privilege of working with a wide variety of clients and customers, all with diverse needs and requirements. Over the course of an average day, it would be fair to say that no two assignments are ever the same. One area where we do receive a significant amount of requests is in the field of financial translation. Financial translation refers to the broad area involving the translation of financial documents. This can vary from the translation of financial reports, to technical terms and conditions found within financial documents through to excel spreadsheets detailing a company’s profit and loss data.  It’s a service that both individuals and organisations may require. Big organisations that are looking to have representation in a foreign market may need to have the financial reports of a potential acquisition translated; similarly an individual may need their own financial details translated if they are looking to relocate or make a significant purchase in a non-native country.

Often, financial translations involve material that is of a private and confidential nature. The material may be due for publication on a set date, but prior release is forbidden. It is vitally important then, when determining who to use as you translation supplier, that the supplier you choose is able to fulfil any requirements you have regarding confidentiality and non-disclosure. Using an agency rather than an individual translator may be of benefit here. Agencies typically have access to a number of suppliers and can handle multiple documents. They are likely to have confidentially agreements already in place with all their suppliers that govern the disclosure of the work and therefore you would only need to provide one confidentiality agreement for the entire project – between you and the agency. The other obvious benefit of using is an agency is the ability of the agency to handle multiple documents into a number of languages.

If your documents have a lot of repeated text throughout them or you have clauses (such as in terms and conditions) that you need to have repeated at specific intervals within in your financial documents, it is worth finding out if your proposed supplier is able to handle translation memory. Translation memory (TM) is a software application process that will look for duplication in your document and prompt the translator to reuse this duplicate text when and where needed. One of the big benefits of using TM is that it helps with the consistency of your document as well as potentially reducing the overall cost of the project.

In addition to using translation memory it would also be worth investigating if your proposed suppliers have access to relevant financial dictionaries. The financial industry uses many complex terms, anachronism and phrases that are not widely used outside the industry. It is therefore vitally important that the translators undertaking your assignment are not only aware of this terminology, but have access to the resources that explain what they mean. Simply googling a specific terms is often not enough to get the required definition, and a good translator will have access to a wide range of dictionaries specific to their areas of expertise. 

Another key consideration already outlined at the start of this piece is the use of skilled translators. Professional translators will often specialise in one specific area, and a skilled translator will not only have language qualifications, but also a qualification in their area of expertise. As described, a typical qualification for a financial translator can include an MBA or accountancy qualification. Prior to choosing your translation provider it would be worth consulting with them to find out what typical qualifications their financial translators hold.

As mentioned above, if your assignment is fairly lengthy it would be worth considering the use of an agency in preference to an individual translator. It may be that your project is required in multiple languages or the output is needed in a specific file type, such as print ready or XML. Here an agency is likely to have the advantage in terms of its access to resources, usually being able to manage multiple languages in multiple files types. It would be worth confirming that your selected language provider is able to handle specific file types and has the resources in house to be able to output into the desired format. 

For individuals who need to have financial documentation translated for legal/compliancy reasons, I always recommend confirming the scope of the requirements with the body that have requested the translations. For example if you are looking to emigrate to a foreign country and part of the application process stipulates you need to have bank statements translated, it is worth confirming how much of the statements are needed (e.g., all figures contained within the documenty or just the text).  It may be that as well as translation your documents require rekeying and certification, all of which can add to the overall cost of the assignment.

Financial translation is a broad area within the translation industry and when done well is performed by a professional financial language expert. Finding the right supplier who can fulfil your requirements is key and as illustrated above prior to sourcing a suitable supplier it is worth confirming the scope of your requirements and the suitability of the proposed supplier to match these requirements.

 

Once a homeowner in foreclosure begins working with his lender, he or

she will be asked for several financial documents in order to assess

the homeowner’s current situation, what was the cause of the default

and what type of workout can be accomplished. The reason a homeowner

needs to provide this information is in order to determine what their

available options are based on their current financial situation.

A successful foreclosure workout that enables the homeowner to keep

the property is dependent on the lender being able to determine that

the homeowner suffered a financial hardship and through the financial

paperwork provided will have the financial capability to be able to

keep the loan current. Other options that may be available for a

successful workout involve a pre-foreclosure sale or Deed In Lieu of

Foreclosure which will be dependent on the lender being able to

determine there was a financial hardship, but due to a homeowner’s

current circumstances, foreclosure is inevitable.

Most lenders will require the following documents as the minimum for

considering a loan workout, and many lenders will not consider a

workout until the loan has been delinquent for at least 90 days. This

is why it is important for the homeowner to contact his or her lender

to find out the particular guidelines that their lender uses.

Hardship Letter

This letter describes the hardship that caused the loan to go into

default and describes your preferred solution to bring the loan

current. The hardship should be involuntary, such as divorce, job

layoff or medical reasons. This letter will also include your proposal

for a workout and the reason you are confident the workout plan will

succeed.

Paystubs

One or two current paystubs from each person occupying the property

who is contributing to the payment of household expenses. The lender

will use this to determine the feasibility of any repayment plan, or

whether to determine foreclosure is inevitable.

Tax Returns

If the homeowner is self-employed, these types of borrowers will need

to provide the last two years tax returns along with a current profit

and loss statement. Many self employed borrowers don’t receive

paystubs, the lender will use the tax returns to determine income

levels.

Financial Statement

The lender will ask for a financial statement outlining all of your

income, assets and liabilities. This statement provides a “snapshot”

of your financial situation allowing the lender to determine how the

economic hardship can be overcome. In addition, many lenders also ask

for a monthly expenses worksheet this includes other debt obligations

such as credit card payments, utilities, food, etc. Make sure that as

a homeowner you make a diligent effort to give an accurate estimate of

your monthly expenses. It would also be advisable to begin to cut

some of your discretionary expenses in your monthly budget.

The more organized the homeowner is in this process, the better the

homeowner will be able to handle the myriad of questions that he or

she will have to undergo with the lender. One key thing to remember

if the homeowner is attempting to complete a workout without outside

assistance is to submit ALL of their paperwork together as a package.

Be sure to keep copies of everything and document when they were sent.

In addition, a homeowner should keep a notebook to record or summarize

any and all conversations or documents sent to anyone that he or she

discusses or communicates with regarding the loan. This information

can later be helpful in the event that there are any miscommunications

and/or a homeowner may need to hire a lawyer.

The homeowner’s lender needs all of the above information to be able

to determine which type of workout may be appropriate. Once that is

determined, the lender will communicate with the homeowner what their

options may be and what will be the next steps a homeowner will need

to address or act on. While this financial assessment process may be

grueling to the homeowner, a realistic assessment of the situation may

enable the homeowner to find a solution he or she might not have

believed was previously available.

Recording and managing accounts along with daily expenses can be really tedious, if you are not having the assistance of professional bookkeepers. After all, it is the bookkeepers that will be handling trial balance, profit and loss account, ledger entries, balance sheet, invoice generation, preparing financial documents and reports, and many other bookkeeping tasks. It is not just in NY, but also in other states that bookkeepers are highly professional in the matter of handling their tasks. Moreover, it is essential for bookkeepers NY that they need to have proper qualification and registration certificate from the authorized association for carrying out the procedure.

Whether you happen to reside in NY or any other state of US, bookkeepers will surely help you with scrutinizing and keeping your financial transactions updated. You just have to observe and corroborate that the bookkeepers you are hiring has to have a professional certificate and a good practical experience, so that your task is carried out efficiently. After all, it’s the security of your entire business that is at stake and you need to hire bookkeepers with utmost care. It is obviously understood that you would not like to end up having tax raids and ruin the business along with reputation. And bookkeepers are not kept for this reason at all.

Bookkeepers NY are really professional in their approach and have the knack of handling issues that may crop up in their field. These are the qualities that all bookkeepers NY should possess, so that you are able to have access to efficiency. After all, you will be paying a lot of money to the bookkeepers that you would be hiring and effectiveness is a must in their work. There are two time slots in a year that witness heavy work load on bookkeepers. Tax season is one such time period in which the companies are busy in tallying their accounts and financial documents. Another time period that necessitates the same concentration by bookkeepers to their work is at the closing of the financial year.

Filing tax on time is one of the most essential things and all the financial documents have to be in proper order prior to that. It is the work of bookkeepers NY to maintain the documents and keep updating them on regular basis. After all, you would not like that your bookkeepers NY should keep on searching for small-small bills at the end of financial year. It will entirely be a mere wastage of time and time is money. Moreover, sudden hotchpotch in tallying the total of all business documents may lead to missing out of certain important expenses or payments. And this can invite a huge lot of problems.

If you are not satisfied with the services of in-house bookkeepers NY or you think that the cost for that is too high, then you can opt for outsourcing. Outsourcing will not only save your time, but also money that was being paid to your in-house bookkeepers in the form of various add-ons. Since the outsourcing staff will be concentrating on this particular aspect of business, there will be no chance of being some expenses or payments to be missed.

What other kinds of financial documents can be created with spreadsheets?