Are you considering a franchise business?  Read this blog post on evaluating the strength of your franchisor before signing on from the First Prize Franchise blog.

I posted on this a couple of years ago but  I consistently see people who invest their life savings tinto franchise operations.  Some of these people achieve great results but many (perhaps even a majority) do not. What separates the good from the bad? 

One critical aspect to consider in my view is the brand itself.  Is the brand recognizable?  If not, the franchise better have a fantastic system, unique concept or protected intellectual property.  Otherwise, I think you need to question up front whether the franchise is right for you.

There is no also validity to the claim that franchise operations are less likely to fail than non-franchise operations. The truth is that franchisees fail at a rate that is similar to non-franchise businesses. In fact, the International Franchising Association has discouraged all franchisors from making such claims.  So careful due diligence is important when considering a franchise opportunity. One of the best things you can do is talk to as many existing (and former) franchisees as possible. Also, consider several key disclosure issues including:

  1. Franchisor’s litigation history;
  2. Amount of the initial investment;
  3. Vendor rebates and products you must buy from the franchisor;
  4. Earnings claims made by the franchisor;
  5. Franchisor’s financial statements;
  6. Trends concerning the number of outlets.  It is important to closely review the information regarding outlets. Carefully study the number of transfers and not just the number of closures.  A high number of transfers may be an indication that franchisees in the system are struggling, but bad stores have not been shut down. 

And finally, be willing to walk away. This is the paradox of successful negotiation. Those that are willing to walk away usually find they get more in negotiation, especially in today’s economy. Many franchisors are willing to make a deal these days. Don’t get in a hurry in your negotiations. You may be able to secure important concessions if you are patient.

 

Growing Des Moines businesses may want to consider a six month program offered by the Small Business Administration called the Emerging 200 (e200) Initiative.  Locally the course is taught by Monica Dolezal of Bizstarts.  The program begins in April.

The goal of e200 is to identify 200 inner-city businesses across the country that show a high potential for growth and to provide them the network, resources and motivation required to build a sustainable business within a designated inner-city geographic location.

The cornerstone of the e200 initiative is an in-depth educational program running approximately 80-100 hours, to be held two half-days per month from April through October, 2010. It will focus on topics such as organization management, finance, growth strategies and management, market development, and strategic planning.  Small business executives in the e200 Initiative participate in an intensive and comprehensive program, draw from each other’s experiences and expertise, develop connections with local capital providers, and complete a growth plan by the end of the program.

Participation in e200 is free to qualifying businesses. Criteria for participation includes having been in business for a minimum of three years, $400,000 or more in gross annual revenues, and a business location within the City of Des Moines. Participation will be limited to only 15 businesses in Des Moines and 200 businesses nationwide.

For more information contact Monica Dolezal of Bizstarts at 515-229-2345 or the local Des Moines SBA office at 515-284-4522.

 

 

 

 

 

 

https://youtube.com/watch?v=9XZCaA2Q4Vk%26hl%3Den_US%26fs%3D1%26rel%3D0

 

A common thing I see from franchisees is that they include only the name of their franchise in an agreement as opposed to including their corporate or limited liability company name. Most of the time the names are different. For example, if my franchise is "Tops Franchise" but my corporate name is "Rush Nigut Enterprises, Inc.", I need to make sure the corporate name is included in the contract. 

I had this exact thing happen to a franchisee client. He failed to include the name of his corporation in a contract and used only the name of his franchise. The court ruled that he was personally liable for the debt because he had not disclosed to the other side that he was signing in a corporate capacity.

So be careful to always include your corporate or LLC name and sign with your title, (i.e. President, Vice-President, member, etc.).

This is a part of an on-going series of posts which will form the Legal Guide for Starting a Business in Iowa.

You are considering forming an Iowa small business. What type of business structure should you choose? In Iowa, your choices generally are a sole proprietorship, a partnership, S corporation, C corporation, or a limited liability company. There are others but these are the main entities to research.

Some of the factors to consider in choosing a business structure are:

1) Personal liability protection;
2) How profits are taxed;
3) Ability to take advantage of fringe benefits;
4) Ease in raising capital.

A sole proprietorship is the easiest to set up (you generally do not need to take legal action) but you have unlimited personal liability. In today’s sue happy society it is probably a good idea to consider a form of business that provides you with personal liability protection like a corporation or LLC.

Similarly, a partnership is also easy to set up and involves two or more people. A partnership requires no formal documentation but a partnership agreement is preferred. Like sole proprietorships, you and your partners have unlimited liability. With the ease of setting up and operating a limited liability company, a partnership is usually not recommended given today’s litigious society. 

Traditionally, most small business owners selected the S corporation as their form of business. The S corporation is often a good choice because it provides you the limited liability you need but you avoid double taxation because all business profits are taxed to you as an individual.

The limited liability company has exploded in popularity over the past decade and also provides limited liability and avoidance of double taxation. An LLC may offer flexibility not available with corporations when it comes to ongoing requirements, its ownership and how the owners are paid.

The C corporation has traditionally been used for larger businesses but accountants may recommend this entity because the owners can take advantage of certain fringe benefits. Also if you need outside capital, a C corporation may make it easier to attract investors such as venture capitalists.

So which business structure should you choose? Before choosing a business structure it is wise to talk with an accountant. The accountant can review your financial situation with you and advise you on the best strategy for your business. In my view the choice of a business structure usually boils down to tax treatment. So talk to your accountant first and then go to the business lawyer to set up the business entity.

Our next posts in the Legal Guide to Starting a Business in Iowa series will examine the S corporation, limited liability companies and C corporations in more detail.

 

 

 

This February is National Start a Business Month. To celebrate I am offering to form any Iowa incorporation or LLC for half the price during the month of February 2010.  It’s my small way to encourage business start-ups and help out start up entrepreneurs.

 

Today I am excited to get a chance to participate in 22 Tweets with Lance Godard.  22 Tweets is an opportunity for practicing lawyers that tweet to share their stories and tell a little bit about themselves in a 22 question format.

Lance has a terrific site (an ABA Journal Blawg 100 recipient) that features many interesting and insightful lawyers. I encourage you to check it out.

Be sure to follow us this afternoon @22twts and @rushnigut. 

 

A couple of years ago I set out to write a Legal Guide to Starting a Business in Iowa. Unfortunately trying to work, write a blog, coach baseball and write the guidebook didn’t quite work for me. I started the guidebook but never came close to finishing it.

So this year I have decided to blog the guidebook. At the end of the project, I’ll have my book and hopefully Iowa entrepreneurs will have something that is helpful and informative.  The project may take several months so most of the information on the blog over this time will be very general in nature rather than dealing with current events. I’ll still blog on current events as appropriate.

Thanks for your continued support and have a happy New Year!

 

A couple of years ago I touched on how wage and hour lawsuits were on the rise. Since then Iowa’s own Casey’s General Stores got tagged for $11.7 million in a settlement.  But not even I could have predicted the potential $1,000,000,000 liability that AT&T allegedly faces for failure to pay overtime. Yep, that’s a BILLION dollar claim!

Naturally that kind of pie in the sky number might leave one to think, "It’s never going to happen to me, my business is much smaller and I won’t be a target." But when you look at the fact that experts believe approximately 70 percent of businesses are out of compliance with wage and hour laws, you shouldn’t be quick to shrug off the prospects of a process server knocking on your door. All it takes is one disgruntled employee to contact the Iowa Workforce Development or the Department of Labor and you could find yourself in the middle of a wage and hour dispute.

So what are some helpful tips to avoid wage and hour lawsuits? (The outline below is from an earlier post.  The comments from some prominent employment attorneys are especially good).

 

  • Conduct a Wage and Hour Review.  Your first step should be to get with an employment law attorney or other wage and hour/human resources specialist who can review your pay practices to determine whether you are in compliance with the law.  The cost spent for a review and developing a compliance program could save you tens of thousands of dollars in the long run or perhaps even millions if you run a large company. 
  • Train Managers.  Making sure managers understand the rules is paramount.  Managers can avoid costly mistakes and spot problems before they become too costly.
  • Think Exempt-Non Exempt, Not Just Salary – Hourly.  Too many employers pay employees a salary and then believe that relieves them from any obligation to pay overtime.  Employees need to make sure those employees are properly classified as exempt (someone who is typically not paid overtime) or non-exempt (someone that is generally entitled to overtime).
  • Take Complaints on Wage Issues Seriously.  You want to treat wage and hour complaints just as seriously as employment issues including harassment or discrimination.  In fact, these wage and hour lawsuits could be more costly to your business.
  • Do Not Retaliate.  Never, never, never retaliate against someone that makes a complaint for wage and hour issues.
  • Develop strong policies on pay practices and employee hours.  Make sure employees work those hours assigned and do not work off-the-clock.  Above all, properly document the number of hours worked because just like in baseball where a tie goes to the runner – if the employer has not documented the hours worked by the employee – the benefit of the doubt will go to the employee. 

 

 

An older post from Guy Kawasaki on the top lies from lawyers but worth reading. Kawasaki says at the end of the post that it wasn’t his idea so lawyers shouldn’t get upset with him.  However, most lawyers could benefit from reading the post.  An important take away is that if you say something, you had better follow through. 

Of course every business person could probably heed that advice, not just lawyers.