Investigate Franchises Carefully Before Investing or Buying

In the Des Moines Register today there is an article about a food truck franchiser that allegedly got cross-wise with investors and franchisees. The article shows just how critical it is to perform due diligence when it relates to franchises (or any other business opportunity). I have a number of posts available I have written over the years on franchise due diligence.

But what’s interesting to me is that investors were actually asked for smaller sums of money (example $14,000) than what you might ordinarily expect for a national franchise operation. In my experience if someone is asking for you to “invest” in their business in smaller amounts such as $10,000 to $20,000, be very careful. This may be a sign of someone who is merely looking to meet a short-term cash deficit/problem rather than someone who is actually looking for a long-term investor. Business “investors” are typically asked for larger sums of money such as $100,000 and above. The individuals asked to “invest” the smaller sums of money almost always have a more difficult time getting their money back. To compound the problem agreements of this smaller nature are often not reviewed by lawyers (or sometimes lack a written agreement entirely) and almost always lack key terms to provide recourse and collateral for the investor.

Buyer beware!

 

Iowa Caucus Wrap Up

The Iowa caucus may be over but just so we wouldn’t lose all the media attention today we decided to have a snowstorm to keep media in our state for at least another day.

As I predicted last week Ted Cruz end up victorious on the Republican side. The Cruz ground game proved to be too much for Donald Trump and the other candidates. I expect Marco Rubio was pleased with his close third place finish that likely makes him a real contender moving forward. It is also interesting to me that the last caucus winner, Rick Santorum, finished dead last on the Republican side. What does a victory for Cruz in Iowa mean? He’ll obviously get a bit of momentum with the victory but Iowa hasn’t been too good at predicting the winners on the Republican side. Instead, I look for Marco Rubio to begin surging by beating expectations here in Iowa. More than any other Republican I see him as the candidate who can steal voters away from the Hillary Clinton base. Because they tend to be more devisive candidates, Cruz and Trump are more unlikely to sway democrats and independent voters in my opinion.

On the Democratic side, I am somewhat surprised Hillary Clinton managed to gain a narrow victory. She has to be relieved but given her massive party support network here in Iowa, it may be hard to call it a “real” victory. The numbers were a virtual tie and as one political operative said she had “pretty much every institutional advantage a candidate could dream of having.” In fact, Sanders managed to almost defeat Clinton despite no name recognition prior to the start of this campaign and with much less ground game support here in Iowa and fraction of the endorsements. There is NO question that Sanders’ supporters were by far the most enthusiastic supporters in Iowa. So can he win the nomination? That’s questionable because his support really has not appeared to go beyond “progressive” white voters. He will need African-American and Latino support if he intends to win. For her part, Clinton appears to have much more support nationally (particularly among African-Americans and Latinos) so it will be interesting to see whether Sanders can pick up momentum from his showing here in Iowa. Unlike 2008, we did not see the kind of overwhelming support for Sanders like we saw for Obama.

Should be an interesting race moving forward. In my opinion Marco Rubio may have had the best night of any candidate and I don’t think Trump is really interested in “buying a farm” after his second place showing. I am quite certain Hillary is very happy to move along to other states and Sanders has a lot of work to do if he intends to catch up. Even though Cruz won, he quite possibly gave one of the most dreadful victory speeches in recent history. His speech was interrupted by our local media not once, but twice, and he will need to improve his polish if he intends to sway mainstream voters.

Predicting Winners of the Iowa Caucuses

The Iowa Caucus is this coming Monday, February 1, 2016. Many in Iowa claim to be happy when the caucus is over but secretly we like all the attention because Iowa only receives this kind of attention every presidential election cycle. So who is going to win the Iowa caucuses this coming Monday? I am by no means a political prognosticator but here are my predictions:

Democrats – Bernie Sanders. Say what? Hillary just can’t seem to win in Iowa and I am doubtful she gets it done Monday. Eight years ago Hillary expected to win Iowa hands down. Obama was a big surprise and I see the same happening from Sanders this time.

Republicans – Ted Cruz. I am predicting his supporters are more organized. He’s got some big name grass roots organizers behind him. Will Trump’s supporters turn out for the caucus is really the big question mark in my mind?  Does Trump have fans or voters? It will be a great test.

Those are my thoughts. Yours?

See real experts predictions here.

Updates:

Last Iowa Poll before caucus. (Ann Selzer is almost always right).

Last poll before caucus from Quinnipac University.

 

How Do Presidential Candidates Stack Up on Small Business Issues?

I normally try to avoid political issues and discussion because really it does me no good. I am sure to tick someone off because I have clients who are on both sides of the aisle and some that are not political at all. But since the Iowa Caucuses enjoy first-in-the-nation status, I’ve decided to join in to give a little political commentary limited solely to small business issues (the centerpiece of this blog). From my standpoint, when you think of business and the candidates, Donald Trump instantly comes to mind. But isn’t it interesting that several Iowa business leaders come out in support of Marco Rubio recently? And what about the other candidates?

So I decided to take a closer look to find out just what the candidates have to say on small business issues by looking solely at their own campaign websites. After all, what’s most important to candidates should actually appear on their campaign websites, correct?

What I found is that most candidates did have positions on taxes and the economy. They may have also mentioned issues impacting business such as US-China relations, immigration reform and health care reform. But what I was really looking for were candidates that directly mentioned small business on their sites. And surprisingly, I noted that only two major candidates, Marco Rubio and Hilary Clinton, mentioned small business as a part of their campaign platform on their websites.  Rubio and Clinton were also endorsed by the Des Moines Register this past weekend.

Are these really the best candidates on small business issues? I am not entirely sure because in reality there wasn’t much to read about their plans on their respective websites. But they did have more than the other candidates in my opinion and by at least mentioning small business they set themselves apart from the rest of the pack.

Read Rubio’s small business plan here.

Read Clinton’s small business plan here.

I am interested in hearing what you think. Please note though that all comments are monitored and only thoughtful comments on candidate positions relating to small business issues will be published. 

Should Non-Compete Agreements Be Enforceable in Iowa?

People often mistakenly believe that non-compete agreements are not enforceable in Iowa. Sometimes people think that because Iowa is a “right to work” state that means non-competes are not valid or other times people may have “heard” non-competes aren’t valid. Neither is correct. Non-competes in Iowa are enforceable in Iowa under appropriate circumstances.

But recently I was intrigued by some back-and-forth editorials published in the Des Moines Register questioning whether non-competes SHOULD be enforceable? One letter to the editor writer argued that Iowa should abolish enforceability of non-competes arguing that the Iowa economy would actually be enhanced by becoming a national leader in permitting employees to freely compete with their former employers. Another writer opined that non-competes are vital to the protection of business relationships and confidential information and should remain an important tool for businesses to protect their interests against employees who seek to benefit directly at the expense of the former employer.

Myself? I have been involved on both sides of the issue. I frequently draft and represent employers who seek to enforce non-competes. But almost just as frequently, I have also represented numerous employees who have sought to avoid such restrictions. So what gives? Should non-competes be enforceable or not?

I have never been a fan of non-compete agreements that prevent someone from working in the same industry as a former employer. In general, I believe that an employee should be permitted to leave an employer to compete FAIRLY against a former employer. After all, it really would be hypocritical of me to say otherwise. You see, non-competes are NOT enforceable against lawyers in Iowa. When I left my former firm about 8 years ago I took all the clients I had originated with me, except one which I voluntarily left with the firm at the time. I did not seek to take clients that were generated by other lawyers or “firm” clients which led to a very amicable parting. Neither party was harmed. I got to keep my clients and the firm and other lawyers kept their clients. Status quo.

That theory may work well for a law firm but the lines become much more blurred for many businesses. If clients left with a former employee it could significantly harm the business. That’s why in general I do believe that businesses should be able to protect their client base for a reasonable time period from walking out the door with a former employee by signing a non-compete.  And if someone is selling their business, the buyer should absolutely be able to obtain the benefit of the bargain by expecting that a seller will not immediately turn around and take back clients from a business the seller just sold. (Even in California non-competes against business sellers are enforceable).

But abuse occurs when employers attempt to overreach with the protections of a non-compete. Like businesses who attempt to enforce non-competes against lower-wage / level employees who have no client relationships. For example, let’s say a janitor wants to leave his employer for a company that will pay him a higher hourly wage. Is it really reasonable to enforce a non-compete when the janitor has never spoken to an actual client of the employer and does nothing but show up to perform his work? Opposed to a sales person has frequent client contact and could potentially take janitorial clients to another company?

And would it is really fair to prevent a former employee to work in an industry completely when they do not attempt to take any of the former employer’s clients whatsoever? Or, what about a franchisee who has given 10 years to a franchiser but decides not to renew a franchise agreement?

An alternative to non-compete agreements is to have agreements that protect the IP of your company without restricting the former employee’s ability to work in an industry. Use of IP agreements may adequately protect the business interests of an employer in certain circumstances without restricting the former employee’s ability to work in an industry. Problem solved?

So what do you think? Feel free to share your general thoughts on the issues involving non-compete issues. Should we keep them enforceable in Iowa or is the current non-compete law acceptable? Like me, do you think it varies upon the circumstances? Or, do you take a more bright-line approach?

 

2016 Brings 10th Anniversary of Rush on Business

This coming year will be the 10th anniversary of Rush on Business. When I first started the blog I wrote articles 5-6 times per week, worried about my search rankings constantly and did everything I could to get my articles linked with other blogs. I have been one of the fortunate ones in the blogging sphere. Somehow I’ve always been able to attract work from clients which always made it worth the effort. Over the years I have definitely slowed down due to client work demands, kids activities and lastly, just a little bit of boredom. But with the 10th anniversary nearing, and having sold some non-legal business interests recently, I have some new found vigor for the blog.

But there will be a definite change this coming year. In the past I’ve always tried to provide timely legal information in an easy to understand format. I’ll continue with that as an overriding goal but moving forward I am going to mix in more opinion articles on legal issues I think could (or should) change.

For example, there’s been an ongoing debate in the Des Moines Register about whether non-compete agreements should be enforceable in Iowa. Or, just what should franchisors be required to provide to franchisees in terms of support and guidance in order to maintain a franchise business? And what about the race for President? Is Donald Trump the shoo-in for those whose most important concern is business and/or the tax code? Just a few of things I have in mind to address early in 2016. In other words, we will try to spice it up a bit.

I hope you will join in the conversation. And thanks for reading and supporting the blog over the last decade! Best wishes for a successful 2016!

Justice Department Delays Web Accessibility Regulations While Plaintiffs Step Up Claims Against Businesses

If you own a business and a website you need to be aware of a substantial increase in claims by disabled plaintiffs and their attorneys regarding website accessibility.  The plaintiffs argue that businesses which offer goods and services to the public through websites are public accommodations that must comply with the general accessibility mandate of the Americans with Disabilities Act (“ADA”).

Unfortunately for businesses seeking guidance in what constitutes a legal technical standard for an “accessible” website, the Department of Justice (“DOJ”) has announced that it will not issue any regulations for public accommodations of websites until fiscal year 2018. As a result, businesses will now struggle to walk through a difficult minefield of issues such as:

  • What constitutes an “accessible” website?
  • Is third party software and content on the site required to be accessible?
  • What happens if an upgrade to a site causes an occasional or unintended barrier to accessibility?

These are just a few of the major questions businesses will face.

However, despite these lingering questions, plaintiff attorneys are now flooding business owners with demand letters and lawsuits alleging that their websites are not accessible to plaintiffs with disabilities. We’ve had clients receive these demand letters and I know several other business law firms have reported their clients received such claims too. My best guess is that plaintiff attorneys will look at businesses with sales in excess of $10-15 million first and then work their way down.

So, what do you do if you receive a demand letter or lawsuit claiming your website is not accessible to those with disabilities? First and foremost, do not delay in contacting your legal counsel. Make sure your lawyer is familiar with the claims and understands the issues. Most law firms and business lawyers will be completely unfamiliar with the issues and process. You then will need to decide whether to fight the claims or to settle. In a very complex (and uncertain) area of the law, many businesses appear to be considering settlement because it is less expensive and brings greater certainty to the situation. There is another cost to consider and that is the potential black eye your business could receive if it is identified as a business that does not support access to disabled persons. Businesses such as Target and others were hit by substantial lawsuits. Target set up a $6 million settlement fund after initially litigating the case. The case, filed by the National Federation of the Blind, was a public relations nightmare for the company. And I guarantee you plaintiff attorneys understand this.

But even if you are going to settle a case, there will be a price to pay to bring your website into compliance. You’ll need to work with website experts that understand website accessibility for disabled persons.  In our experience, most website developers and designers do not understand these issues. We are working with nationally recognized experts in the area to assist business clients in developing websites that can correct the issues typically identified by plaintiffs in these cases. This is not something you want to leave to your typical website developer.

We will be holding workshops in the very near future for our clients regarding this important issue.

Square One DSM Luncheon Features Mike Colwell

Typically you will find the Executive Director of Entrepreneurial Initiatives for the Greater Des Moines Partnership asking the questions at entrepreneur luncheons.  But this time Mike Colwell will be the one on the hot seat. This will be a great luncheon discussion as Mike will be interviewed by Tej Dhawan (an accomplished entrepreneur and community leader in his own right). The thing I love about Mike is that he brings an honest approach to discussions about business. He doesn’t always tell you what you WANT to hear but it is most often what you NEED to hear.  Mike has had an extraordinary business career by any standard. You will undoubtedly learn something and it will also be a great networking opportunity. Don’t miss this luncheon through the Square One DSM Start-Up Stories series!

Find the details of the event hosted on October 21, 2015 at 11:30 am here.

 

Avoid Mistakes in Franchise Process by Digging into the Details

I read an interesting article on Why Some Franchise Buyers Almost Always Make Mistakes written by franchise lawyer Michael Garner. Michael recommends digging into the information contained in Item 20 which consists of the five tables that show the status of the outlets within the system. The article is well worth the read.

My experience is that prospective franchisees will come to me very excited with a great story of how a franchisor is expanding and growing. But often, the tables in Item 20 paint a different picture. A story where franchise locations are being closed or transferred (a red flag) or where company-owned locations are closing. It is important not to fall into the sales hype. See the facts for yourself by investigating Item 20 carefully.

Successful Franchises Continue to Evolve

I found this article from Entrepreneur Magazine interesting regarding several franchises that are now offering delivery (some franchise on this list and others do not). The most successful franchises are continually evolving and adapting their concepts to meet consumer demands.

What about your franchisor? Are they evolving and adapting?

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