It is flattering to be included in FranchiseHelp’s Best Franchise Blogs in 2011. There are a lot of great blogs on the list, so it’s always nice to be recognized with such outstanding writers and franchise industry experts. Here’s what they had to say about Rush on Business:

The only thing that could potentially be more important than figuring out what to do when running a franchise is figuring out what NOT to do. With 16 years of experience in franchisor legal services, Rush Nigut knows what aspects of the business make or break the young franchisee. This blog has trusted content about both franchising and law, making it great for those who don’t want to get too bogged with the legal complications of starting a franchise.

Some of the others on the list include The Franchise King Blog, Blue MauMau, The Franchise Chatter Blog, Franchise Today / franchisEssentials, Franchise Lawyer Blog, and FranchiseCafe Blog.

And while you are at it, you may want to read this post from FranchiseHelp on why you should hire a franchise lawyer before you buy a franchise.

Do you have a new technology-based business idea? If you do, I encourage you to check out the Dream Big, Grow Here contest that is sponsored regionally by the Business Innovation Zone.  The winner of the regional business pitch contest will be awarded $5,000 and then move on for the opportunity to win another $10,000 in a state-wide contest here in Iowa.

The background information (from the BIZ Web site):  In June of 2010, the University of Northern Iowa Regional Business Center (RBC) developed a partnership with the Iowa Bankers Association and the Community Vitality Center to attract and link emerging Iowa entrepreneurs with the capital resources available in the state to serve them.

A statewide contest entitled Dream Big Grow Here was launched, featuring $1,000 monthly grants awarded online to emerging and existing Iowa small business owners who uploaded their ‘dreams’, then encouraged friends, family and other business owners to vote for them.

Wildly popular, Dream Big Grow Here attracted 63,489 visitors during the five month beta test. Given the success of Dream Big Grow Here and increased interest in online resources among innovators, the RBC approached a small group of statewide sponsors to provide matching funds for regional contests-with cash awards of $5,000 and fund a statewide pitch-off among winners for a grand prize of $10,000.  

There will be 8 regional contests, including ours here in Central Iowa.  Each region will select (through crowd voting) a winner, who will receive $5,000.  Those 8 regional winners will then compete against one another (again, crowd voting) for the statewide $10,000 prize.

It’s my understanding the business idea must be pre-sale. So if you have sold your product or service to anyone, you won’t be eligible. It is for true start-up technology-based businesses. For more information be sure to contact Mike Colwell of the BIZ at MColwell@desmoinesmetro.com. You can also check out a recent podcast on Silicon Prairie News discsussing the program and other interesting issues.

 

I spend a substantial amount of time fielding questions about whether a new Iowa business owner should form a corporation or LLC.  It’s an important question but I caution new business owners not to get too bogged down in the details. Instead, I suggest putting a team of advisors in place to help navigate the issues of business formation. I highly suggest not only consulting an experienced business attorney but also an accountant to help advise on tax issues. In my opinion, tax issues will often drive the choice of entity decision as much as any single issue. That’s why advice from an accountant is very helpful in the process.

Some basic items often considered in whether to form a corporation or LLC:

  • Will your business entity have only individuals or will business entities be shareholders / members? S corporations have restrictions that make it impossible for business entities to be shareholders. Consequently, business entities with businesses as shareholders / members will most often consider C corporations or LLCs.
  • Are you looking for venture capital? Venture capitalists tend to favor C corporations.
  • How much income do you anticipate (realistically) making? Depending on how much money you make, the S corporation may be more advantageous from a tax standpoint than an LLC due to self-employment and other tax issues.
  • A single member LLC may be especially good in certain situations depending on income level because it offers less formalities than corporations and you may be able to file taxes on your own individual return without the need of a separate tax return like corporate entities.

These issues only touch the surface of choice of entity questions. There are often other issues to consider. Seeking advice from an experienced business attorney AND accountant is important to set your business on the right track. And don’t worry, many business owners change their entity after the initial formation when circumstances change. Choice of entity is an important decision but there is nothing that says it must be set in stone throughout the entire existence of your business. If circumstances change, your choice of entity may change too.

New York franchise lawyer, Charles Internicola, has good blog post on Buying a Franchise: What do the franchise fees cover? It’s an excellent overview and Charles is right on point with his factors that are more important than the franchise fee itself.

The key in my opinion is to find a franchise that will deliver you a return on your investment. Don’t fall into the trap of buying yourself a job. The most successful franchisees I have seen are usually multi-unit operators that work "on" the business rather than "in" the business. They also make sure they have plenty of start-up capital to get through the lean times. Raising just enough capital to pay the franchise fee is not enough.

Plus, focus on franchises that deliver superior brand recognition in their marketplace. Buying an unknown franchise in any marketplace is seldom worth the expense in my experience. If you and your friends haven’t heard of the franchise, you might want to think twice.

 

I recently had the pleasure of presenting at the Raising Capital Seminar sponsored by the Business Innovation Zone. I discussed business entity formation and certain start-up issues. The presentation touched on forming S corporations, LLCs, business valuation methods, intellectual property ownership and the use of non-disclosure agreements.

You can see the video highlights here. (It’s just over 30 minutes so grab some popcorn).

You can view my slides here.

Sometimes knowing what not to buy may be just as important as what to buy.

From BlueMauMau you should see this list of the 25 worst franchises to buy in 2011. The list is based upon failure rates of SBA loans only (with 50 or more disbursements). Eight franchises have over a 50 percent failure rate on getting the SBA loan repaid. It would appear you definitely need to think twice if you are looking at franchises on this dubious list.

I hear two words from prospective franchisees all the time. In fact, almost every time someone visits with me regarding a franchise opportunity. But a blog post on the Franchise King’s Blog says these two words don’t exist in franchising. 

If you are a prospective franchisee read the post from the Franchise King and take it to heart. There is no such thing as "Turn-Key". Franchise operations do not magically appear and then you walk through the door to a pile of cash thrown at your feet. It’s hard work and it depends all on you.

I can tell you from experience that if a dispute or litigation occurs, the franchisor will probably deny they know what "turn-key" means and the franchise agreement will contain disclaimers that make the franchisor’s marketing materials immaterial. And although the franchise industry has done a good job of marketing its method of business, the facts are that franchise operations fail at essentially the same rate as independent business operations.   

I am not anti-franchising. Franchising definitely has its place. But I’d make sure I was with a franchisor that possesses superior name recognition in its marketplace, quality products and/or services and a proven system. A proven system that won’t be "turn-key".

It is not unusual for a franchisor and franchisee to have a dispute that is resolved and then the franchisee continues in business. In those circumstances, a franchisor will often resolve the dispute with the franchisee in exchange for a full release of claims. These releases state that the franchisee is releasing the franchisor for any and all claims through the date of the release. The franchisee, often more than happy to have the dispute behind them, will agree to the release with few questions asked.

Franchisees need to think twice about agreeing to a full release in this circumstances. While it may resolve the current dispute, it will also potentially gut a significant portion of a franchisee’s case against a franchisor should a dispute arise again. The franchisee must obtain sufficient compensation or other settlement terms that make it worth giving up all claims.  Chances are there will not be a second bite at the apple after a release is signed for past claims including issues not central to the initial dispute that may be raised by the franchisee later.

I am not saying a full release in these situations is never warranted. The franchisee continuing in business just needs to make sure it gets full compensation and understands that a full release will significantly limit the claims against the franchisor in the future.

A Startup City Des Moines builders forum is tonight at the BitMethod offices located in the Liberty Building downtown. What is it? It’s just an opportunity for local entrepreneurs to get together, share ideas and make connections. No formal presentations. No real plan.

I wrote a couple of weeks ago about the momentum building in the Des Moines entrepreneurial community. You’ve got to hand it to Startup City Des Moines and others for their efforts in trying to build a startup culture here. It’s really nice to see.

Matt Brick has a super webinar on our Brick Gentry Web site on the Changes to Iowa Employment Law and Legislation. Employment law is a constantly shifting area of the law that has serious consequences for employers, even when making a good faith mistake. Matt’s presentation covers important developments in employment law for both public and private employers in Iowa.

Want to hear a Webinar on a particular legal topic? Let us know what you would like to know more about.