Franchisee’s dream comes to abrupt end

When you start to accumulate these stories, you see it is a systematic issue.”

Calgary Herald
August 31, 1998

Franchisee’s dream comes to abrupt end
Ontario woman lost years of work and her business when franchisor changed locks
Ron DeRuyter

CAFOLesStewart1.jpg

Les Stewart, president of the Canadian Alliance of Franchise Operators, leafs through a franchise contract that may be confusing for a potential owner, unless a lawyer is standing by to translate.

Anne didn’t want to join the ranks of disgruntled franchisees.

The 52-year-old Guelph woman worked hard after she bought a retail electronics products franchise eight years ago. Backed by a large, reputable company, she was confident her business would succeed.

Anne did do well, or so it seemed.

Her sales increased. She was named franchisee of the year twice, most recently in 1996. Two years ago, she opened a second store.

But Anne wasn’t making money, or at least not much.

The industry had become fiercely competitive. Her margins shrank and it became more difficult for her to pay for her inventory, not to mention her operating costs.

She asked for help from the company and put together a revised business plan. It would be hard, but she was optimistic things would turn around.

She had to be optimistic – she had borrowed more than $300,000 to set up and expand the business.

She was counting on the venture to eventually provide her with the means to retire.

But everything went awry in June, when a company official showed up at the store. He asked Anne if she could cover her debts. When she said no, he told her the company was taking over.

The locks were changed and Anne was out of business. She came away with nothing other than the impression she was on the hook for a lot of money.

“My financial and emotional health disappeared in seven hours, just like that. That is pretty difficult to take.”

Three months later, Anne still has nothing. She is unemployed and flirting with bankruptcy.

And she fears the company will come after her for money it says she owes – and for talking to other franchisees about what happened.

It wants her to sign an agreement that releases her from her debts to the company, but only if she agrees to take not legal action against it, and to not say or do anything that could adversely affect its business.

The same agreement says she will incur damages of $10,000 each time she breaches the latter provision.

Anne, who won’t use her real name or identify the company because of the threat, says she has been made to feel like she did something terribly wrong.

“It’s like they are thinking, she will go away and won’t talk. She will be ashamed and won’t want to be seen in public. That is all part of it. I am sure it is the same for anyone who goes through this type of thing.”

Les Stewart, a Barrie, Ont.-area resident who started the Canadian Association of Franchise Operators because of problems he ran into with the franchisor of his lawn care business, says Anne’s situation isn’t unusual.

Franchise owners “think they own their business,” he says.

“In reality when they come to the point they want to sell it, or the term is being renewed, or there is an accusation of termination, there really is no solution other than to accept what the franchisor wants to give you to do or you can take them to court.

“And most franchisees don’t have the $200,000 that it takes to prove there is some kind of wrongdoing.”

The fear and isolation Anne feels aren’t unusual either, Stewart says.

“She is just by herself. She thought she messed up. But when you start to accumulate these stories you see it is a systematic issue.”

Anne doesn’t blame the company for the difficulties her business experienced.

She may have over-extended herself – for example, she opened the second store because she thought contract purchases would come her way, but they didn’t – and perhaps she stuck it out too long in an industry where margins keep shrinking.

She renewed her franchise agreement last year because her sales were growing.

But her best year produced a profit of only two per cent.

“You believe volumes will eventually make it work,” she says. “But the margins get smaller and smaller.”

Anne expected to recoup her initial investment in the franchise within four or five years.

But then she had to redecorate the store to keep it fresh looking. Last year, when she had to move the store because her lease ran out, she had to pay for leasehold improvements.

“Of course, you have to go into debt to do that. That makes it very hard. It is a system which is set up so that you can never get out.”

“If you can’t sell it and make a profit, all you can do is keep working hard and try to do things and save a penny here and there…

“You always hold out the hope it is going to turn around. You keep kidding yourself that it will get better.”

(insert box)

FRANCHISE INDUSTRY CONTACTS

Canadian Franchise Association
(represents franchise companies)
Richard Cunningham, president, 1-800-665-4232
Web: www.cfa.ca/

Canadian Association of Franchise Operators
(represents franchisees)
Les Stewart, president, 1-705-737-4635
Web: www.cafo.net

(insert box)

QUOTABLE

When you start to accumulate these stories, you see it is a systematic issue.

LES STEWART,
PRESIDENT OF THE CANADIAN ASSOCIATION OF FRANCHISE OPERATORS


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