When Arlene Ryan inherited $150 000 from her grandfather, she decided to use the money to start her own business. Arlene has been a legal secretary for 14 years and feels she knows quite a lot about business. ‘Every day I take depositions and type legal memoranda,’ she noted to a friend. ‘And I’ve seen lots of businesses fail because they didn’t have adequate capital or proper management. Believe me, when you work for a law firm, you see – and learn – plenty’.
Almost six months passed before Arlene decided on a business to pursue. A franchise ad in a business magazine caught her attention; Arlene called and found out that the franchiser was selling fast-food franchises in her area. ‘We are in the process of moving into your section of the country,’ the spokesperson told her. ‘We have 111 franchisees throughout the nation and want to sell 26 in your state.’ Arlene went to a meeting that the franchiser held at a local hotel and, along with a large number of other potential investors, listened to the sales pitch. It all sounded very good. The cost of the franchise was $75 000 plus 4 per cent of gross revenues. The franchiser promised assistance with site location and personnel training and encouraged the prospective franchisees to ask questions and investigate the organisation. ‘If you don’t feel this is a good deal for you, it’s not a good deal for us either; good business is a two-way street,’ the spokesperson pointed out. ‘We are going to be looking very carefully at all franchise applications and you ought to be giving us the same degree of scrutiny.’ Arlene liked what she heard but felt it would be prudent to do some checking on her own. Before leaving the meeting, she asked the spokesperson for the names and addresses of some current franchisees. ‘I don’t have a list with me,’ he said, ‘but I can write down some that I know of, and you can get their numbers from Google’. He then scribbled four names and locations on a piece of paper and handed it to her. Arlene called information and was able to get telephone numbers for only two of the franchises. The other addresses apparently were wrong. She then placed calls to the two franchisees. The first person said she had owned her franchise for one year and felt it was too early to judge the success of the operation. When she found out Arlene was thinking about buying a franchise, she asked if Arlene would consider buying hers. The price the woman quoted was $5000 less than what the company currently was quoting. The second person told Arlene he simply did not give out information over the phone. He seemed somewhat edgy about talking to her and continually sidestepped Arlene’s requests for specific financial information. Finally, he told her, ‘Look, if you really want this information, I think you should talk to my lawyer. If he says it’s okay to tell you, I will’. He then gave Arlene the lawyer’s number. Something didn’t feel quite right about this so before she called the lawyer she thought she would think it over during her lunch break. When she returned, she had decided that further investigation was necessary. She felt she needed more information about what a potential franchisee could expect from the franchisor making such an offer. She wondered where she may obtain further information and what specific rights she may have if she would buy into a franchise. What should she ask and who should she ask to get the right answers? If she didn’t buy this franchise there would be others. On arriving back at her desk one of the law firm’s partners was waiting for her. ‘Hey, Arlene, what are you doing calling this guy?’ he asked, holding up the telephone number of the franchisee’s lawyer. ‘Are you planning to sue someone? That’s his specialty, you know’. Arlene smiled. ‘As a matter of fact, I am. I’m thinking of suing you guys for back wages.’ The lawyer laughed along with her and then walked back into his office.
1 What is your appraisal of the situation? Where should Arlene go to seek further information about her rights as a franchisee?
2 What should Arlene expect to be provided by the franchisor? Assemble a check list that could guide her enquiries.
3 What would you recommend Arlene do now? Be complete in your answer.