Printer Buying Guide

Posted by admin | Computers | Saturday 3 July 2010 12:48 pm

Printers are essential peripherals, performing a critical role as they render electronic information into tangible records or material output. You’re simply not using your computer to its fullest potential if you are unable to print reports, presentations, letters, photos, or whatever it is you need to output. Choosing a printer can be confusing, however, in today’s competitive, ever-changing landscape. This buying guide rounds out some of the more important criteria to consider before you make that all-important purchase decision.

Printing Technologies

This is the biggest decision to make before anything else. Your choice should be based on how you work and the kind of output you will be expecting from the printer.

Inkjet: Inkjet printers can deliver stunning color, so this is the way to go if you are mostly concerned with printing photos. Inkjets can be used for printing text, but the print speed is too slow if the primary purpose of the printer is document printing. To obtain more photo-realism, choose inkjets with an expanded range of colors that includes light cyan and light magenta in addition to the standard four-color CMYK (cyan, magenta, yellow, and black). The extra colors deliver more subtle color gradations in blue skies and skin tones. And if you print a great deal of black-and-white photos, consider photo printers with more than one variation of black ink or with gray inks. Many photo printers use color inks to produce a composite black, resulting in a muddy tint. A second black-ink cartridge and different shades of gray help maintain a neutral tone, with the gray ink allowing for subtle shading and thus improving the quality of black-and-white photos.

Dye-sublimation: Dye-sub printers can print continuous tones and a superior range of colors that laser printers are unable to, making them ideal for more demanding graphic applications or color printing. Dye-sub prints are also less prone to fading and distortion over time than dye-based ink prints. In addition, many consumer-based dye-sublimation printers can print directly from digital cameras and also accept memory cards. They are, however, more limited in the range and size of printing media that can be used usually letter-size paper or smaller.

Laser: Laser printers are the perfect choice if you need to print large amounts of text documents. They print faster than inkjets and have a lower cost of operation over the long-term even though they may cost more to buy initially. There are trade-offs, however. Monochrome laser printers produce crisp black-and-white text but cannot be used for color printing. Color lasers deliver excellent text and graphics but are much more expensive and can be costly to maintain.

Printer Usage

Some printers are good for general printing, while others are better at specialized tasks or combine several functions into one machine.

Photo: If you take lots of pictures, consider getting a photo printer. Photo printers can be in the form of photo inkjets which can print both photos and text; snapshot photo printers for outputting small 4×6-inch prints; or professional photo printers for large, tabloid-size photos and often including network connections to enable printer sharing. Most consumer and professional photo printers use inkjet technology, while most snapshot photo printers that print 4×6-inch prints rely on dye-sublimation technology. Regardless of the type or technology that is used, the most important thing to look for in a photo printer is photorealistic quality. Everything else is secondary.

General Purpose: As the name implies, general purpose printers can be used for printing almost anything, including text and photos. Choose a general printer with a laser format if you print more text than photos; and choose an inkjet format if you print more photos than text.

Multifunction: Multifunction printers (MFPs) combine in one device several functions such as printing, scanning, faxing, and copying. MFPs cost less than buying separate stand-alone devices and cut down on the hassle of setting up individual machines. If you are strapped for budget or space, consider these all-in-one devices. Take note, however, that a malfunction with one component takes down the whole device, and individual components may not be upgradeable. MFPs are available with either laser printers to emphasize speedy text printing and the occasional graphics output; or they are available with inkjet printers for vibrant photo printing.

Environment and Applications

When deciding on a printer, think about where and how you plan to use it. The home user will have different printing needs from that of the office worker, photographer, or traveler.

General/Basic home use: Versatile, affordable printers are the best choices here, and inkjets usually satisfy the printing needs of most home users looking to output photos from their digital camera or for other light printing needs. Ink cartridges can be expensive, so look for inkjets with separate cartridges for each color. This way, you need not throw out entire cartridges simply because one color has been used up ahead of the others but replace only the ones that run out.

Home office: An MFP may be a great device to have in your home office, especially if it comes with an automatic document feeder that can process multipage documents unattended. Extra onboard memory increases efficiency and allows for processing of larger graphics and documents with ease. And if scanning and photocopying are important to you, get an MFP with a higher resolution.

Photography: Photo printers are the obvious choice if printing photos is your main thing. Choose either the smaller, snapshot photo printer that produces 4×6-inch prints; or choose larger-sized, professional photo printers that are capable of delivering tabloid-size 11×17-inch prints even up to full-bleed 13×19-inch prints that include a border to allow room for registration marks.

Text printing: If printing large amounts of text is what you’ll be doing most, monochrome standard laser printers are your best bet as they can turn out page after page of crisp text fairly rapidly. These printers are ideal for printing black-and-white text and simple graphics, so you may need to get a separate inkjet or photo printer in order to print color photos unless you wish to invest in the more expensive color lasers that can print both black-and-white and color documents.

Small network: A workgroup laser printer can be what you need if your home office or small office is built around a network. Workgroup lasers pack faster print speeds and have more memory to handle multiple print jobs. They also offer more advanced handling capabilities such as larger trays, and may offer duplex (double-sided) printing, sorting, and stapling. More expensive than standard laser printers, the majority of workgroup lasers are monochrome designed for printing text and simple graphics.

Traveler: For the businessperson on the go and looking to print, portable printers provide the solution with their compact size (small enough to fit into a briefcase), light weight (less than 5 lbs.), and handy power (operates on batteries or with a car charger). Newer models can print wirelessly making it a non-issue if you forget your USB cable at home. Some portables offer great extras such as a sheet feeder for automatic page feeding, are able to handle transparencies and envelopes, and even support an optional scanner cartridge that replaces the ink cartridge and turns the printer into a scanner. Portable printers are more expensive and print more slowly than standard printers, but convenience is what you’re paying for.

PC-free printing

With something called PictBridge support, photo printers do not need to be connected to PCs to be able to print photos. PictBridge is a standard adopted by manufacturers of printers and digital cameras for PC-free printing, allowing photos to be printed straight from the digital camera to the printer by simply connecting them through a USB cable as long as the printer and digital camera are compatible. A variation to this idea is the ability for printers to read memory cards directly from a digital camera or other image-storing device by simply inserting the cards into designated printer slots.

Once the camera is connected to or the card is inserted into the printer, photos can be reviewed in a number of ways, depending on the printer model. Some may feature a built-in LCD screen that allows shots to be reviewed, edits to be made, and the ones to be printed chosen directly from the screen. Other models may let you create an index sheet similar to a contact sheet in film printing so you can mark the ones you choose for printing and rescan the sheet. Other printer models let you decide which shots you want to print straight from the digital camera. Many types of memory cards are available on the market today, so make sure the printer accepts the kind used by your camera for you to enjoy card-direct printing of photos.

Paper Handling

Paper is obviously an important issue in printing. Here are some important tips on paper handling for printers:

When buying a printer, make sure that it’s equipped to accommodate all the paper sizes and types that you’ll be using. If you need to print on heavy stock, for instance, make sure the printer can handle the heaviest paper you use. For this purpose, a printer’s paper path can give an indication of how it handles paper: Inkjets generally use straight-through paper paths, while lasers use S-shaped or U-shaped paths. Generally speaking, the straighter the path, the thicker the media that can be used. However, the curved paths typical of laser printers also makes it possible to have more flexible configurations for input and output trays.

Using the correct type of paper will also make a difference to your printing. Inkjets can print on a variety of matte or glossy photo paper, but make sure you choose the right kind of paper for your printer to obtain optimal print results. For example, matte papers are suitable for both pigment and dye-based inks, while luster finishes are generally more suitable for dye-based inks.

In terms of size, most inkjets and lasers can handle printing of letter and legal sizes. If you need to print larger prints, however, consider a printer that can handle sizes like 11 by 17 inches. You may also consider getting a printer with multiple paper drawers if you’ll be switching between different paper sizes on a regular basis. For a laser printer, multiple output trays, duplexing (double-sided printing), collating, and automatic stapling can be additional useful features.

If you plan to use third-party paper, make sure it works well with your printer. Before you buy a large quantity of third-party paper, try a few samples by printing the same photos on both the printer manufacturer’s paper and the third-party paper, and then compare the results.

Printer Specs and Key Features

Printers feature various specifications, so navigating the spec sheet intelligently requires familiarity with what each specification entails according to the printing technology involved or for the type of usage planned for the printer.

Resolution: For laser printers, 300 dpi is adequate if all you need is to print black-and-white text, but choose at least 1200 dpi for photorealistic grayscale or color printing. For inkjets, choose one featuring 1200-dpi or higher resolution with a droplet size of 4 picoliters or smaller for sharp, clean output. With photo printers, resolution varies according to technology: Output at 300 dpi by photo printers using dye-sublimation technology is comparable to photo printers using inkjet technology outputting at 1200 dpi or higher.

Speed: Speed ratings vary greatly, and the print speeds cited by manufacturers usually refer to printing in draft mode or at the lowest resolution. For laser printers, a more accurate way of measuring actual print speed is to time just how long it takes from the minute you hit “Print” to the time that it takes the printer to warm up, spool the job into the print queue, and for the printed output to finally come out. For inkjets, print speed is not one of its stronger suits; so don’t be overly concerned with this spec.

Memory: Extra memory will come in handy for laser printers to enable them to handle large graphics and documents more easily. Check the maximum upgradeable memory allowed for your printer, if it features a hard drive with similarly upgradeable memory, and if the printer can use generic memory or needs the manufacturer’s brand. In the case of inkjets, memory is built-in and not upgradeable, but this is not an issue inasmuch as processing occurs on the side of the computer so there’s no need for large amounts of installed RAM to begin with on inkjets.

Connectivity: Most printers today no longer support the older parallel connection but feature instead USB 1.1 or Hi-Speed USB (USB 2.0) either of which should work fine with USB computers. For printers to be used on a network, it will need to have an Ethernet port to enable printer sharing. For more flexible printing options, you may want to look for printers with infrared input/output ports that allow wireless printing from notebooks or other devices with infrared ports. And if high-speed or long-distance printing is what you need, consider printers with a FireWire port.

Consumables and cost per page

The purchase price of the printer is just the beginning of its overall cost because over time, the hidden cost of ink or toner, paper, and parts will add up. These “hidden costs” are the consumables; dividing the total cost of consumables by the number of pages that can be produced from the consumables gives you the cost per page. Laser printers offer the lowest cost per page, using relatively inexpensive toner and normal-weight, uncoated paper. On the other hand, cost per page for inkjets can be four or five times as much, depending on how much ink you use and the cost of the paper normally more expensive, coated, glossy paper for higher-quality color output. The tank configuration for inkjets should also be taken into consideration. Inkjets with a single cartridge for the colored inks will incur higher replacement costs because the cartridge must be replaced as soon as one color runs out even if the cartridge still contains plenty of ink for the other colors. To save costs, get an inkjet with separate cartridges for black and each individual color.

Print Quality

All the specs and fancy features in your printer won’t mean a thing if you don’t have good, solid print quality whether of text or photos to back it up.

Text: Text should be smooth and crisp. At the smallest font sizes, the individual letters should be clearly readable, and they should not bleed into one another. Medium-size fonts should have no fuzzy edges, and the largest fonts especially bold ones should be filled with solid black, not a muddy brown or bluish tone. You should also be able to see well-formed and well-rounded counters (the openings) in letterforms; if you don’t, it’s usually a sign of the printer laying down too much ink. (Remember, however, that inkjet printers will display some wicking on plain, 20-lb. paper, as the ink bleeds along the paper fibers.)

Graphics: For color printing, look for gradients or areas where a color goes from dark to light. Color should transition smoothly, and you should not see any color banding, where distinct bands progress from dark to light. On a test page, you will likely see a gradient bar that goes from black to white through a series of progressively darker gray shades; the transition from shade to shade should be smooth without a noticeable line. Also, look for a nice balance of colors in color-graphic printing something that’s not overly saturated nor flat and washed out.

Photo: A good photo print should like the original photo. Colors should be accurate and balanced, vivid but not oversaturated. Good detail should be present in all areas, with no jagged lines or pixels or any other visual artifacts. Good contrast should exist between shadow and highlight areas not muddy or flat and without color. You may not always be able to tell the difference from one great print to another, but almost everyone can recognize a bad print when they see one. Trust what you see.

Microtek Lab Inc. is a consumer electronics company focused on scanners, plasma and lcd televisions, digital projectors, lcd monitors, digital cameras, home theatre equipment, and accessories. You can view their online store at http://store.microtek.com Use of this article is permitted provided that the article is used in its entirety.

CD Printers – 5 Tips to Use When Buying a CD Printer – Part 1

Posted by admin | Computers | Sunday 6 June 2010 4:46 pm

There are many factors to consider when making a decision on which CD printer to purchase for your business. This article will touch on a few of the basics like choosing the right printer manufacturer, cost of CD printers, inkjet or thermal, productivity, speed and durability. Part 2 of this article will dig in deeper on the basic criteria listed above as well as on more advanced points like print quality, color matching, unique printing on each disc, total cost of ownership, used DVD / CD printers and buying from a reputable dealer.

For the purposes of this article I’m focusing on just DVD / CD printers, not duplicators with printers that can print and/or copy CDs and DVDs at the same time. I will save that topic for a future article.

The goal of this article is to give you a basis for making the best decision when purchasing a CD printer so you get it right the first time. In this economy, you can’t afford to make the mistake of buying the wrong printer for your CDs and DVDs. Spending money on the wrong CD / DVD printer for your needs and wasting time figuring it out is both frustrating and a misuse of your company’s resources.

The research for this article was acquired over 13 years of selling, using, testing, supporting, and repairing CD and DVD printers. My experience is with mid-level and high-end professional disc printers, so these tips may not be relevant for potential purchasers of entry-level hand feed on-disc printers that sell for $300 or less. Sub $300 disc printers clearly have a niche, but for professional CD printing needs they tend to have high consumable costs, poor technical support, slow print speeds and in many cases poor print quality.

<strong>Tip #1 – Start with the Big 3 Manufacturers</strong>

Rimage, Microboards and Primera have been in the CD printer and duplicator manufacturing business since it’s infancy. In my estimation they have over an 80% market share of the CD / DVD printers sold in the world. The “Big 3″ are the leaders in their respective print technologies and offer the most stability in the disc printer marketplace. These three manufacturers are in a better position to be in business and support you than their less stable competitors in the coming months and years. They also have proven technical support and post-warranty support that is superior to the other manufacturers in the CD / DVD duplication and printing market.

<strong>Tip #2 – Cost of the CD / DVD printer – Inkjet or Thermal</strong>

Costs vary widely, but the main defining points are the type of print engine technology employed in the printer – inkjet or thermal transfer, and whether or not the CD printing system is manual or automated. Inkjet based CD / DVD printers are less expensive than thermal transfer CD printers. A good automated inkjet printer costs $2500, while a good color thermal transfer CD printer costs $8500 or more. Disc capacity and software features also play a role in cost. Part 2 of this article will dive in deeper on the pros and cons of inkjet and thermal based printers.

<strong>Tip #3 – Automated or Manual?</strong>

Choosing between a printer that you manually hand feed the CDs or DVDs, or picking a automated CD printer with a robotic arm or mechanism that moves and prints the discs for you is a big decision in regards to upfront costs, labor, and productivity. Good hand-fed manual disc printers start at $699, whereas an entry-level automated CD printer with a 20-disc capacity costs about $999. Larger and faster automated systems that hold as many as 300-discs can cost up to $9500. So how do you decide which is best for you?

First, estimate the number of discs you will need to print per week, per month and per year. Factor in any growth in that number quarter over quarter or year over year. I have found that many organizations under-estimate their usage projections because they fail to take into account that other departments or employees will need the services of the new CD printer as well. Second, determine if you will have intense peak periods of CD or DVD production. Many organizations need to produce discs only 1 once a week or month, but need all 100 or 500 in a few hours or just one day. Third, determine what is the value of your time. Do you have the time to put each disc in the printer by hand, or is your time or that of your employee better spent doing something else?

<strong>Tip #4 – Speed</strong>

A question I get over and over again is how many discs per hour or day can a CD printer print? The speed at which a CD or DVD is printed depends on a few factors. (1) Print coverage, (2) the resolution chosen in the printer driver, and (3) the actual printer itself. For example, an inkjet printer that prints a CD label with a small color logo, just a few lines of text, with the print driver set at a lower resolution, can print 200 CD’s per hour. That same printer may only have a print throughput of 50 CD’s an hour with a full color edge-to-edge graphic and the print driver set to the highest resolution.

To a lesser degree the same holds true for thermal CD printers. The Rimage Prism thermal CD printer will have greater throughput with less print coverage, but will not suffer as drastic a drop off in throughput while printing a graphic with more print coverage like inkjet printers do. Interestingly, the Rimage Everest thermal printer has the same disc per hour throughput with one line of text in the graphic label as another artwork featuring 100% print coverage. The Rimage Everest III and Everest 600 printers will each print about 65 discs per hour regardless of print coverage.

<strong>Tip # 5 – CD Printer Durability</strong>

Generally disc printers that are made out of plastic are less durable than those made out of metal. Most inkjet printers that I have used and tested over the years are made mostly of plastic components whereas most of the thermal printers are made from metal parts. That being said we have had good success and our customers have had success with Primera and Microboards inkjet printers with an average useful in-service life of 3-5 years depending on how the users treat them. We have some Rimage Prism thermal printers in our CD / DVD production room that are well into their 10th year of service. As a footnote, these thermal and inkjet CD printers have had scheduled cleanings and parts replacement over the years.

<strong>In Conclusion</strong>

Begin your DVD CD printer research with the three major manufacturers – Rimage, Microboards, and Primera. Forecast your daily, monthly and yearly CD and DVD printing needs and determine whether a manual or automated printer makes more sense. Look at both inkjet and thermal options, while keeping in mind your budget and how long you would like the CD printer to last. If you do not have the budget for the CD printer that best fits your needs, try looking for a good used printer or you may find that outsourcing your CD and DVD duplication and printing to a professional service company makes more business sense.

After 13 years of providing CD and DVD Printing and Duplication Service and CD Printer and Duplicator equipment sales and consulting, Kevin Gabrik has amassed a wealth of information on what works best in many different CD / DVD production scenarios. Get more information by visiting www.techwaredist.com. Microboards Print Factory Pro CD Printer (PHP-1000) Review. This article may be freely distributed electronically or in print as long as you leave the article title, author name, body and resource box in tact (meaning NO changes) with the links made active.

Essential Things You Need to Consider When Buying a Garden Office

Posted by admin | Home | Wednesday 6 January 2010 6:46 am

In today’s world, garden offices have gained much popularity and are in great demand. People purchase garden rooms from different suppliers and manufactures. However, there are certain essential things that a person needs to consider before purchasing a garden office. A person, prior to purchasing garden offices, should ensure that he is getting the best deal. There are ten essential things that should be considered before buying a garden office or garden studio.

Before purchasing a garden office one must be sure of the purpose that it would serve. This will help the person to ascertain whether the requirements of the building can be met by the design. If the building is being purchased to be used as a garden office, sufficient amount of lighting should be provided. If the room is to be used as a gym, then there should be provision for sufficient ventilation. If it is for the purpose of garden a lodge, then there should be provision for proper heating.

The position of one’s garden office is also of utmost importance. One rarely requires planning permission most of the time as long as the garden office is situated at a distance of 5 metres from the person’s home and occupies less than 50% of the garden’s area. Permission is also not required if the garden office or garden studio is built for private use and is about 20 metres away from any public place.

A person while buying a garden office or garden studio should also be careful about the height of the building. However, the height of the modular garden offices should not exceed 4 metres. If the height of the garden office exceeds 4 metres a person will have to seek permission. Permission also has to be taken if the building consists of two or more floors. Permission also has to be taken if the size of the rooms exceeds 30 Sq metres.

Further, a person prior to buying a garden room should be sure of the type of room he requires. A person buying a room for a garden studio should ensure that the room is in accordance to his requirements. The design of the room should also be taken into account.

A person buying a room for the purpose of running a garden office should also check the materials used for both constructing and designing the office. There are numerous suppliers who can provide the best garden offices. For information regarding garden offices and garden studios visit gardenlodges.co.uk.

David is a well-known author who has been writing for Gardenlodges. Established in 2003, Garden Lodges provide an exciting range of next generation modular garden offices, garden studios and lifestyle buildings that are factory built to perfection and genuinely habitable. For more information on garden design, visit www.gardenlodges.co.uk

Buying Life Insurance After Being Diagnosed With Cancer

Posted by admin | Finance | Wednesday 6 January 2010 6:45 am

The American Cancer Society estimates doctors will diagnose over 1.4 million new cases of cancer in the U.S. in 2007, with more than 559,650 cancer-related deaths. If you are among the majority of cancer patients and survive for at least five years following your diagnosis, you may face another fight: buying life insurance.

Buying life insurance for cancer patients is challenging, but not necessarily impossible. Your chances for securing a policy depend greatly on the type, stage and grade of the cancer, and even on the treatment plan. There is a relationship between the rate you’ll receive and the curability of your cancer. Certain types of skin cancer, for example, are considered very low risk by life insurance companies and a skin cancer history may not even impact premiums.

Applicants with common and treatable forms of breast and prostate cancer may be able to get a “standard” rating under ideal circumstances. But patients with a history of leukemia or colon cancer may fall into a “substandard” or “high substandard” rating at best, or receive declines. Anyone with cancer that has metastasized likely won’t be able to obtain a policy.

Dr. Charles Levy, senior vice president and chief medical director of AIG American General Domestic Life Insurance Cos., says, “We’re better and better able to differentiate the risks of individual cancers.” Life insurers like AIG American General have sophisticated tables to determine premiums, where they can factor in cancer types and treatments. The end result is better premiums because applicants aren’t lumped together as an “average.”

Most insurers will not offer a policy to someone who is still undergoing treatment for cancer. Depending on your type of cancer, the life insurer may also want to add a surcharge, also called a temporary flat extra. For example, AIG American General sometimes charges temporary flat extras for two to five years, depending on the applicant’s cancer and treatment. The good news is that although these extra premiums can be expensive, they will automatically disappear after a set period of time.

Cancer insurance risk specialists

While a dedicated life insurance agent will search cancer insurance companies to find insurers that will sell you a life insurance policy, in some cases you may be better off seeking out a broker who specializes in finding life insurance for people who have a history of cancer.

These brokers will know the specific questions underwriters will want answered when considering your application. Many brokers have developed relationships with several insurers, so they know which companies offer the best-priced life insurance policies for cancer survivors. Some brokers have experts who specialize in gathering your medical records and organizing them.

By directing your application to life insurers that will view your application most favorably, these brokers will help you find the most accurate price quotes and the lowest premiums for life insurance. Always check the financial strength of the insurer before you buy any policy and be sure that the agent or broker you choose is licensed in your state.

Life insurance strategies for cancer survivors

If you are a healthy cancer survivor, life insurance is even more feasible. There are things you can do to ensure you’re getting the best premium offers possible for your situation.

1. Gather all possible medical records before you apply, from the first pathology report to medical records to treatment records. That ensures medical underwriters have the most complete picture of you, your health, and your cancer history. Having all those records before you apply for cancer insurance will reduce delays in your application process, because your life insurer is going to request them and will wait for them. The information you provide can garner you better premiums in the end: The less life insurer underwriters knows about you, the more likely they are to have to assume you are the highest risk and offer you high premiums accordingly. According to Levy, “If it’s fuzzy, we’re more likely to err on the side of conservatism.”

2. Make sure you have complied with your doctor’s treatment plans. For example, says Levy, if your doctor asked to see you back in one year and you haven’t been back in four years, get to your doctor for your check-up before you apply for life insurance. Your life insurer is not going to offer you a policy without before seeing the results of that check-up. Similarly, if you’ve had breast cancer and you’re due for a mammogram in December and you apply for cancer insurance in October, your life insurer will likely wait for the results of your next mammogram.

3. Get prices from several companies. Policy costs can vary a great deal among companies.

4. See if you can get group life insurance through a professional, fraternal, membership, or political organization to which you belong.

5. Consider a “graded” policy (one with limited benefits) if you cannot get full death benefits. In the first few years of a graded policy, the company pays only the premiums and part of the face value if the insured person dies of a condition, such as cancer, that existed before the policy took effect. If the insured person dies after the specified grading-in period, the company will pay the full face amount of the policy.

If your cancer has been successfully treated, and you are otherwise in good health, you can likely obtain a cancer life insurance policy. If you can show that you are healthy and your treatments have gone well, several insurers may compete for your business.

Visit Insure.com for a comprehensive array of comparative auto, life and health quotes, including a vast library of originally authored insurance articles and decision-making tools that are not available from any other single source. Insure.com is dedicated to providing impartial insurance information to consumers. Visitors can obtain instant quotes from more than 200 leading insurers, achieve maximum savings and have the freedom to buy from any company shown.

Buying a Franchise – Evaluating Franchise Investments and Franchise Disclosure Documents – Tips From a Franchise Expert and Franchise Attorney

Posted by admin | Business | Saturday 11 July 2009 9:06 pm

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

Known in the industry as Mr. Franchise, Mr. Murphy is an internationally-known franchise attorney, franchise expert, author, and instructor. For the past twenty-eight years he has specialized exclusively in the franchise industry and owned a very successful franchise in the home improvement field. He has written over 30 publications, including four books on franchising and one book on trade secrets. Mr. Franchise has drafted, reviewed and negotiated more than 500 franchise offering circulars and instructs franchise company personnel in best franchise practices. He also teaches franchise, licensing and intellectual property courses to attorneys. Mr. Franchise is a franchise attorney and Director of Operations for Franchise Foundations a San Francisco-based professional law corporation.

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