My first video posting (ugh!!!)
February 22, 2012 Leave a Comment
What is the Maricopa SBDC? http://youtu.be/Tx-4JZ_Nzio
Why Small Business Needs a Real Estate Comeback
February 22, 2012 Leave a Comment
http://platform.twitter.com/widgets/hub.1329368159.html
Written By Kate Rogers
Published February 21, 2012
FOXBusiness
Small businesses looking to secure a loan may be holding their breath until the real estate market makes a comeback. According to a recent study, the real estate overhang continues to limit access to capital for small businesses, and hinder their ability to grow.
Small Business, Credit Access ,and a Lingering Recession is the third- annual credit study from the National Federation of Independent Business’ (NFIB) Research Foundation. This year it found 92% of small businesses own some form of real estate, and many lost significant amounts of collateral during the housing crisis.
According to the study, there were more attempts by business owners to secure credit in 2011, with 57% applying for credit from a financial institution, up 9% from 2010. However, the amount of small businesses accessing credit did not increase over the past three years, with between 1.6 and 1.7 million of 5.8 million small employers getting credit over the past three years. The study surveyed 850 small businesses.
William Dennis, NFIB senior research fellow and report author, said the study shows real estate has simply “reeked havoc” on small business owners’ balance sheets.
“They haven’t been able to borrow even if they needed to,” Dennis said. “Some don’t want to, but when you see everything go down the tubes or take a real hit, you aren’t eager to go out and invest.”
Demand for credit lines also rose by one-third over 2010′s numbers, the study found, while demands for line renewals and loans remained flat. Dennis said this shift was unexpected.
“I’m not sure if this is a shift in the way they want to do business, but it may also suggest the type of borrowing they want to do is a bit smaller,” he said. “A line is more flexible, and they’re not committing themselves to a big project.”
Real estate attorney Matt Englett, partner at K.E.L. Attorneys, said the study demonstrates just how impactful the housing bubble was, on everyone.
“Many people have suffered in some way because of the downturn, and their credit has suffered,” he said. “This won’t change until the lending guidelines change. People don’t understand the magnitude of the market downturn, and how far reaching it is.”
Very simply, this has ruined small business owners’ ability to secure loans, he said.
Ray Keating, chief economist for the Small Business & Entrepreneurship Council, said the study made it clear that there are bigger issues at work here for businesses, aside from access to credit. The study said “growing political and economic uncertainty and the protracted problem of poor sales” dwarf getting rejected by financial institutions for credit access.
“Political and economic uncertainty has been huge,” he said. “It’s just the general state of the economy—those are certainly the biggies right now.”
Also, what small businesses may perceive as tighter lending standards may not be viewed in the same light by the banks themselves, Keating said. The survey found a disconnect between lenders and small business owners, with lenders thinking credit standards have not changed over the past year, while business owners feel the market tightened in 2011.
“The credit standards, whether they have changed or not, banks seem to think they have eased,” he said. “Small businesses are seeing these as tighter standards, but banks are saying, ‘This is just the reality of the economy and business at this point.’”
Low Hanging Fruit for Better Margins
February 21, 2012 Leave a Comment
Contributed by Bill Conerly
Do small businesses have a lot of low-hanging fruit? You bet they do. Owners and managers ask me about the economy, then I ask about their business, and I’m often stunned by the opportunities being missed. So I asked some sharp consultants about the most common low hanging fruit. This article is about their advice regarding profit margins. Later this week I’ll post their comments about sales.
“Obsessing about revenues instead of margins” was Victor Diercksen’s response. Victor is a senior guy at eSoftware Professionals, a company which helps businesses use sophisticated software. That brought back a couple of memories of my own work. One client is a job shop in which customers describe their needs, an estimator bids the project, the work is performed and money is collected. This missing step: comparing actual costs with the estimated costs used to bid the project. Imagine a basketball player practicing free throws, but never seeing or hearing whether the ball went through the hoop. The company’s estimators never received feedback on their performance. As a result, the company won the contracts that it underbid. A further result: lower profit margins.
With that story in mind, I strolled through the trade show when I was speaking to another industry comprised of job shops. I stopped by the table of a vendor selling cost accounting software. I asked the guy how many of the companies in the industry were using any kind of software to help them track costs by project. He told me that about 50 percent were tracking their costs, and the rest were running blind.
Margins are also emphasized by Lonnie Sciambi, who calls himself “The Entrepreneur’s Yoda” : “For a start-up, revenue is critical. For an ongoing small business revenue is still critical, but determining how to wring more margin out of that revenue becomes equally so.” He advises determining the three to five numbers that really drive a business, then track them on a weekly or monthly basis.
Before we turn to the sales opportunities, let’s turn to one more element of operations: procedures. Tash Hughes, a writer from Melbourne, Australia, told me that one low hanging fruit was , “not having procedures and methods that can be followed easily by others – if one person has the skills and is unable to do the job, the business is in trouble; if a new person starts, a lot of training time is required; the resale value of the business is limited as no one can duplicate current practices; writing and reviewing processes can highlight areas for improvements.”
That brings to mind another consulting story. A real estate company wanted me to evaluate the long-term growth potential for three different metropolitan areas. The executive I was working with believed that he could do the evaluation himself, but he didn’t want to spend hours and hours getting the data. So he asked me not only to evaluate the three metropolitan areas, but to also document thoroughly the data sources so that on future projects, his assistant could gather the data. I did that and discovered an interesting result: I was using that data documentation myself. I usually grab data on the fly, sometimes stumbling around a bit. (“Where do I get the regional location coefficients?” Is it BLS or BEA?) Now I turn to the binder with my data documentation and move more quickly. Yep, written procedures can be an efficiency tool, which means better profit margins.
How to Finance Your Start-Up Without Tapping Home Equity
February 20, 2012 1 Comment
By EMILY MALTBY
With home values still depressed—and likely to remain so in the coming year—many people who plan to start businesses won’t be able to leverage their personal properties to raise capital they need.
There are several alternatives, however, some newer than others.
Some 39% of business owners with less than $5 million in annual revenues said a bank loan would be the best way to raise capital in 2012, according to a survey of 2,851 owners of small businesses conducted by Pepperdine University in early January. Other top prospects were personal savings (36%), friends and family (19%), and credit cards (17%), according to the survey.
By contrast, only 11% said home equity would be the best capital source.
Despite significant funding challenges, including depressed home prices and a tight overall credit market, entrepreneurship rates have risen from 2006 through 2010, according to the Ewing Marion Kauffman Foundation, a small-business research group in Kansas City, Mo.
The foundation has an annual Index of Entrepreneurial Activity but hasn’t yet measured the rate of new business creation during 2011, it says.
Here’s a look at some of your choices:
Peer Lending
A small but fast-growing segment of business owners have tapped relatively new capital sources that operate through websites.
Peer-to-peer loan sites, such as Prosper.com and LendingClub.com, allow lending directly between individuals. Interest rates depend on the borrower’s credit history. Only 4% of business owners surveyed in the Pepperdine study say this would be the most promising method of securing funds this year.
Crowdfunding, available on Kickstarter.com, IndieGoGo.com and other such sites, links fundraisers to a large pool of small-dollar contributors. The sites charge fees for the service, typically less than 10% of the capital raised.
Last September, Sung-Yoon Kang got a $5,000 loan through Prosper.com at a 27% interest rate and his wife, Dawn Kang, got a $3,000 loan from LendingClub.com at a 7.9% interest rate. The couple turned to peer lending after realizing they wouldn’t qualify for a traditional bank loan.
The Kangs, who don’t own a home, used the funds to purchase a food truck. They hope to launch the business Ka’Chi Inc., of West Chester, Pa., in the near future.
Asset-Based Credit
Asset-based lending and factoring got attention when banks slashed credit lines in the 2008 financial collapse. Total asset-based credit commitments grew 5% in the last year, according to a November 2011 survey by the Commercial Finance Association. This type of financing has been dominated by the retail and garments industries, but has spread to other business sectors that have accounts receivable or other assets, according to Brian Cove, chief operating officer at the association, a New York-based trade group.
Asset-based lenders extend loans that are backed by marketable securities, equipment, inventory, accounts receivable and other business assets.
Factors operate on a similar model, purchasing accounts receivables from a business in exchange for an advanced funding amount for each invoice. The Pepperdine study shows 5% of business owners believe factoring is the best way to raise capital.
Interest on the loans can top 20%. Rohit Arora, chief executive of Biz2Credit, a small-business lending broker based in New York, says he believes the interest rates and other related costs may come down as a result of increased competition among lenders.
David Godwin turned to factoring when he started ContinuityX Inc. last year. Within four months of launching, the technology services company, based in Metamora, Ill., had secured a $500,000 credit line from Forest Capital LLC, allowing Mr. Godwin to hire 14 employees and purchase new equipment.
“It jump-started our business,” says Mr. Godwin, who did not use his home equity but did tap personal savings and friends and family to cover other initial costs.
SBA loans
Many young start-ups face significant barriers securing bank financing because they don’t have a substantial track record of growth. But there are small signs that the credit crunch is easing, as lending standards become more flexible and as some borrowers become more willing and able to take on debt, according to recent data including one January survey of senior loan officers by the Federal Reserve.
Outstanding loans to small businesses have fallen each quarter since 2009, according to the most recent data from the Federal Deposit Insurance Corporation, in an analysis of loans of less than $1 million. They totaled slightly less than $600 billion at the end of September 2011, 5% less than the year earlier.
One role of the U.S. Small Business Administration is to help banks make loans to riskier small businesses, while offering better terms such as a longer payback period. SBA loans are provided by traditional lenders, but a portion of each loan is backed by the government in the case the business owner defaults. Still, SBA loan recipients must adhere to the underwriting standards of the bank, which may include using personal property as collateral.
SBA lending hit a record in the government’s last fiscal year. But the jump was, in part, attributed to the larger loan amounts the agency agreed to back. Since October 2010, SBA lenders have been able to offer loans as large at $5 million, which are more profitable than the smaller loans start-ups typically request. (See this October 2011 story.)
In general, smaller firms have more success with these loans once they are established and ready for expansion capital.
Angel Investors
Some small businesses have had success seeking angel financing – a segment that’s showing a revival of sorts. Most angel investors, of course, will wind up with an equity stake in your firm.
Some 39% of the $8.9 billion in total angel investments in the first half of 2011 went into seed and start-up ventures, up from 26% of $8.5 billion in total investments over the same period a year earlier, according to the University of New Hampshire’s Center for Venture Research.
It can be tricky to weed out the tire-kickers, says Paul Kedrosky, senior fellow at the Kauffman Foundation. Many individuals are angels “in name only” and not likely to make investments as eagerly as professional investors, he notes.
Individual angels are increasingly coming together to invest as groups. That spreads risk among the group’s members. But it could create headaches for business owners who have to deal with a number of angels rather than just one or two investors.
Personal Credit and Savings
More than 70% of small businesses were launched using personal savings or assets, according to Elizabeth A. Duke, a governor on the Federal Reserve Board, who, last April, disclosed preliminary data from the Federal Reserve’s upcoming Survey of Consumer Finances.
Personal credit cards, as well as friends and family have grown in popularity during the downturn, and will likely remain an important avenue for entrepreneurs even after the economy rebounds.
Some entrepreneurs obtain business credit cards, which carry fluctuating—and often higher—interest rates while lacking consumer card protections. Delinquencies on business cards can also damage your personal credit score.
The Five Major Challenges for Micro-Businesses Today
February 17, 2012 Leave a Comment
Taken from Forbes Online
Micro businesses in the United States represent an important economic segment and will be an important factor in our economy. They are major contributors to job growth and form a huge block of the total outstanding business community and tax base. Today Micro Businesses face five major challenges in order to flourish and survive:
Capital or Finance – Many businesses today cannot find funding or loans for their business. Whether a business owner is looking to refinance existing bank debt or growth capital, money is hard to come by. Without funding, micro businesses across the US will struggle. The bank-lending crisis and depressed equity values in homes have reduced the amount of available dollars to micro business. The Small Business Authority has programs suited for business with modest employee headcount.
Technological Advances – Without understanding what software, hardware and business processes are the latest, greatest and most cost effective, micro businesses cannot compete. Products such as cloud computing can turn a struggling micro business into a profitable machine by reducing cost, improving security and enhancing business functionality. The Small Business Authority has solutions for Micro Businesses in the Cloud that can turn micro business owners into strong competitors.
Embracing E-Commerce or the Internet Advantage – The Internet has been the world’s great equalizer for micro business. How in the world can a micro business compete today with capital shortages and an environment that is friendly only to big business? All we need to do is observe the success of Facebook and Mark Zuckerberg as an inspiration to what one can do with knowledge an idea and correct utilization of the Internet’s strength. The Small Business Authority’s Internet tools can take a micro business to higher highs by building web presence, web traffic, web security and maximizing client experience, reach and payment flow.
Navigating Health Insurance – The ultimate challenge to Micro Business in 2012, 2013 and 2014 will be how the Patient Protection and Affordable Healthcare Act will affect small business. The landscape is treacherous as many questions exist and changes in the environment are transpiring with speed and magnitude. Without a road map, a go to source for information and up to the minute information, micro businesses will not be able to provide for the health, safety and cost for their staff and families. The Small Business Authority has the answers for you and your company. Come to our 50 state licensed National Insurance Agency at the Small Business Authority for cost free advice and service for all your rapidly changing health insurance and benefits needs – specifically designed for the micro-cap companies
Outsourcing When Possible – Micro Cap Companies are, by definition, too small to be able to have in house IT, Payroll or HR Staff. Outsourcing these vital services and needs are important for Micro Cap business to be able to compete, lower their business risks and do so without the expensive non-levered internal staff. Capabilities such as human resource software modules (for as little as $30 per month) are quite attractive to a micro business owner who may otherwise hire a PEO or internal HR person. Outsourcing payroll and shifting tax liability risk for payroll tax reporting is also an intelligent choice, The Small Business Authority has many ways to save Micro Businesses money while reducing their risk.
Rebuild Our Infrastructure to Jump-Start Our Economy
February 17, 2012 Leave a Comment
By ‘Tom Donohue, President, US Chamber of Commerce
This year we’ve got a fighting chance to get our economy moving, get Americans working, and tackle long-overdue projects to modernize crumbling infrastructure. Nearly everyone agrees that making fiscally responsible investments in our transportation and infrastructure is a legitimate function of government—and that it can pave the way for stronger economic growth and job creation. Congress must push through the gridlock that has contributed to our idling economy and move on core transportation bills—now.
Though belated, we’re off to a good start. After more than four years of delays and 23 stopgap measures, Congress finally passed a long-term reauthorization for the Federal Aviation Administration (FAA). At last, the FAA will have the resources to modernize our air traffic control system and repair America’s airports. This will ease delays, conserve fuel, improve the flow of commerce, create jobs, and save lives.
Lawmakers must also pass legislation to maintain investment in our roads, bridges, and transit systems. SAFETEA-LU, the law that sets surface transportation policies and funding, expired more than two years ago. To bridge the gaps, Congress has passed eight short-term extensions, perpetuating a cycle of uncertainty that has been a major drag on our economy.
The federal government contributes 45% of highway and transportation investments around the country, and public and private funding at the local level makes up the balance. States and communities are justifiably hesitant to put up the cash for new projects without assurance that the federal government will kick in its share for more than 90 days. So projects have stopped. Workers have been laid off. Economic output has sputtered. All the while, our roads and bridges fall further into disrepair, and our transit fleets and systems continue to age.
Congress can break that cycle by passing a multiyear reauthorization of SAFETEA-LU— and with the latest short-term extension set to run out in March, lawmakers have got to move quickly. The bill should consolidate programs, eliminate mandates, and cut red tape and bureaucracy. It should maintain current funding levels, while prioritizing resources for critical projects and shrewdly leveraging public funds to attract private investment.
By making smart infrastructure investments, we could achieve nearly $1 trillion in unrealized economic potential and create millions of jobs. As long-term transportation legislation is debated in the House and Senate, the U.S. Chamber urges lawmakers to set aside politics, resolve differences, pass legislation, and send it to the president for his signature—and fast. We’ve got an economy to jump-start.
NetworkingPhoenix.com – Signature Event Tonight!
February 15, 2012 Leave a Comment
AnnouncementDoor Prizes (RSVP for free to be eligible):
- Annual Networking Passport Membership from NetworkingPhoenix.com; $99 value.
- Free professional photography session with Simply D. Photography; $250 value.
- A one night stay from Talking Stick Resort; $150 value.
- Free 50-minute Hot Stone Massage and a 50-minute Facial from Hand & Stone Massage and Facial Spa; $110 value.
- Two $35 Gift Cards for Park Avenue Blow Dry and Beauty Bar; $70 value.
- Two $25 Gift Cards for Primebar; $50 value.
WhenWednesday, February 15th, 2012 6:00pm – 9:00pm
WhereTalking Stick Resort 
9800 E Indian Bend Rd Scottsdale, Arizona 85250phone: (480) 850-7777
9800 E Indian Bend Rd Scottsdale, Arizona 85250phone: (480) 850-7777
| neighborhood: |
|
Attributes
|
GroupNetworkingPhoenix.com
| type: |
/ |
Description
Please RSVP using the “Event Toolbar” on the right side of this page. This will automatically enter you into the “door prize” raffle. You can also browse the list and see who else is attending by clicking on the link titled “See Who’s Attending.”If you are interested in participating as a Table Exhibitor please contact mitra@networkingphoenix.com.
Obama’s S.B.A. Budget: Doing Less With More
February 15, 2012 Leave a Comment
The Small Business Administration has been pretty low key about its proposed budget for 2013, which was released Monday. Unlike previous years, there was no conference call scheduled with the administrator and not even a press release to list the highlights. And this might explain why, at least in part: while President Obama is promoting big investments elsewhere in the federal budget — namely on transportation, infrastructure and education spending — he is doing no such thing for the S.B.A. While the agency’s appropriation would be substantially bigger than this year’s under the administration’s budget, in many cases small-business owners would actually get less from the agency — continuing a trend that began with the proposed budget for 2012.
Including funds for managing disaster loans, the administration seeks $1.1 billion in 2013 (pdf, with much greater detail here), nearly $200 million more than what Congress passed for 2012. (Though the administration earlier proposed combining the S.B.A. with the Commerce Department and various trade agencies, such a merger is not reflected in its budget request.) But once again, much of the additional money goes to the subsidy for guaranteeing loans to small businesses. Government agencies that make or guarantee loans are required to estimate the share of loans likely to fail and then account for that cost in their annual budgets. In the case of the S.B.A., the cost of those loans is shared between borrowers, who pay fees, and taxpayers, through an appropriation.
But the S.B.A.’s general business loan, or 7(a), program is caught between two opposing pressures. On the one hand, borrower fees, as a percentage of the loan, are already the highest they can be under the law. But at the same time, government analysts have concluded that small-business borrowers are a riskier proposition than they used to be, so the amount of subsidy is higher for these loans. As a result, the Obama administration is asking for a subsidy that is two-thirds higher than the loan subsidy for 2012 — but even then, the agency would not be able to guarantee as many loans in 2013 as in 2012. The subsidy for 2013 provides for $16 billion in general business loans, down from $17.5 billion this year.
Hayley Meadvin, an S.B.A. spokeswoman, said that the administration’s budget would not deprive small businesses of credit. “We’ve set the caps at the historical averages,” she said. “We’ll still be able to serve all the small businesses coming to the S.B.A. looking for loans.” That will very likely be true if current borrowing trends hold steady: according to the S.B.A., for the first four months of the government’s 2012 fiscal year (which began in October), 7(a) loan approvals totaled $4.3 billion. At that rate, total lending for this year would come in well below even next year’s proposed smaller limit.
But small businesses would very likely feel other cuts, if the White House has its way. The administration wants to trim 8 percent off its funding for counseling programs, a slightly more modest haircut than it proposed last year at this time. Back then, the Obama administration sought a 10 percent cut to small business development centers — even as a similar counseling program, Score, was untouched — as well as a deep cut to the counseling that accompanies microloans.
This time around, both the S.B.D.C.’s and Score would face the same 10 percent cut. Microloan counseling would not fare as badly, but other programs that serve the most disadvantaged small businesses, like HubZones and outreach to Native Americans, would do much worse.
Curiously, at the same time the agency would like to cut the funding it provides to counseling programs, it seeks a substantial increase in its budget for managing those programs — a 250 percent increase, which amounts to $2.25 million more. The agency has not yet responded to a request for an explanation.
The S.B.A. does point to some new investments for 2013, including new internal computer systems and a new Internet portal for small businesses seeking government assistance across agencies. The administration wants to ratchet up entrepreneurial training for veterans. And it appears to anticipate a rapid expansion in S.B.A.-backed venture funding through small business investment companies. The agency would like to raise the amount of financing it is authorized to guarantee from $3 billion to $4 billion, even though the agency has yet to come close to reaching the current $3 billion limit. (In the last year, the administration has announced new investment funds under this program, for early-stage companies and more established companies in struggling parts of the country, but as planned, these small initiatives would not push total investment past the cap. Here again, agency officials have not offered an explanation for the increase.)
Of course, Congress makes the final decision on how much money the S.B.A. will get, and what happened in 2012 may prove instructive for 2013. There was no argument over subsidizing business loans. But while the Obama administration sought big cuts to the small business development center network and to microloan counseling, in the end, Congress was unwilling to make substantial cuts to either program.
Tough Times for Franchising
February 10, 2012 Leave a Comment
By SARAH E. NEEDLEMAN
Two closely watched disputes now playing out in the courts are shining a spotlight on tensions between franchise owners and management.
The growing rift between franchisees and franchisers—businesses that collectively employ roughly eight million people in the U.S.—follows three consecutive years of declines in the number of U.S. franchises, and as economic pressures prompt people to limit discretionary spending.
Growing numbers of franchise owners are forming associations hoping to tilt the balance of power away from management. Sarah Needleman has details on Lunch Break.
Late last month, an association made up of roughly 185 U.S. franchise owners filed a lawsuit against Cold Stone Creamery Inc., a subsidiary of Kahala Corp., accusing the ice-cream chain of refusing to provide detailed information about funds that the franchisees believe should be set aside for their benefit in a marketing fund.
The lawsuit, which seeks declaratory relief, is asking the court to force Cold Stone to provide the franchisees with information on how much of the rebate money it receives from its approved vendors is actually used for marketing purposes. The Cold Stone franchisee association is also demanding insight into what the company does with revenue and interest generated from sales of unused gift cards.
Sam Hodgson for The Wall Street JournalFrank Caperino is part of a franchisee association that filed a lawsuit against Cold Stone Creamery.
“We’re paying too much for our products and we’re making less profit every year,” said Frank Caperino, who is part of the association that filed the lawsuit in Miami-Dade County, Fla., state court. Mr. Caperino currently owns two Cold Stone Creamery stores, both in San Diego, which he would like to sell.
A spokeswoman for Kahala, whose other franchise brands include Blimpie sandwiches and Samurai Sam’s Teriyaki Grill, said in an emailed statement that company policy prevented her from commenting on “pending legal matters.”
Management’s response to the group’s lawsuit hasn’t yet been filed. “We are confident with our position,” she said.
Cold Stone Creamery, of Scottsdale, Ariz., has roughly 1,500 locations in 17 countries.
A typical Cold Stone Creamery franchise posted $352,000 in revenue in 2011, down from $400,000 in 2005, according to the group of franchise owners who filed the lawsuit. It is difficult to know how much of the declining profitability for franchise owners may be due to the economic downturn, or what the group says is management’s poor decision making.
At least a dozen new franchisee associations have risen out of conflict in the past year, according to several attorneys who helped these associations to incorporate. They are “forming at a faster rate than ever before” and “they’re taking a more aggressive and more vocal stance,” says Robert Zarco, the Miami attorney who is representing the Cold Stone franchisee group.
“At the end of the day, it just boils down to profitability,” said Eric Stites, managing director of Franchise Business Review, a market-research company in Portsmouth, N.H. “When franchisees aren’t making money, that’s when you see them form associations and sue the franchiser.”
Franchisees Versus Franchiser
An association of Cold Stone Creamery Inc. franchisees filed this complaint in a Florida state court last month against the Scottsdale, Ariz.-based chain.
![[docid=120208215659-57263a1cc4ac463496f60d743d9d372b|file=sbfranch0208]](http://s.wsj.net/public/resources/images/OB-RS548_SBFRAN_D_20120208170214.jpg)
The food sector was hit particularly hard during the recession, as many people cut back on eating out. On average, food franchisees make a profit of $88,382 annually and pay an initial investment of $450,000, according to Franchise Business Review.
Specialty chains like Cold Stone Creamery may have suffered more than other chains, Mr. Stites said. Trade publication Franchise Times estimates that Cold Stone’s systemwide revenue fell 1.1% to $493 million in 2011 from 2010.
The Kahala spokeswoman declined to provide specifics on the profitability of the typical franchisee or the figures provided by third parties.
Franchisees typically sign lengthy agreements that require them to follow the rules of the franchiser, which commonly require arbitration to resolve a dispute, thus restricting their ability to file individual lawsuits.
“Litigation sends a signal to the franchiser and others that something is wrong,” said John Gordon, an independent chain-restaurant analyst in San Diego who served as an expert consultant on a Burger King case.
In that case, in November 2009, Burger King Corp. franchisees sued the fast-food company, claiming that it acted in bad faith when it mandated that its double cheeseburgers be sold for just $1. A settlement was reached last April. As part of the settlement, Burger King agreed to come up with a new systemwide policy for making decisions about what is listed on its value menu.
In September 2010, a group of Edible Arrangements franchisees filed a lawsuit against Edible Arrangements International Inc., claiming management “abused its discretionary authority” when the fruit-basket chain operator mandated in March 2010 that all U.S. locations must be open on Sundays and stay open for an additional two hours every other day of the week. The decision was made “with little to no regard for the individual needs or surrounding demographics of its franchisees,” according to the complaint filed in the U.S. District Court for the District of Connecticut.
“Our franchise agreement is illusory,” said Sherri Vertorano, an Edible Arrangements franchisee in Mooresville, N.C., who is part of the lawsuit. “It’s like a living, breathing document that changes whenever the franchiser wants to create another revenue stream.”
Ms. Vertorano and about 200 other franchisees are also seeking to stop Edible Arrangements management from collecting 2% of gross sales on orders placed over the Internet, among other grievances, according to the complaint. That fee was implemented last month, the company said.
Tom Downes, owner of an Edible Arrangements outlet in Portsmouth, N.H., said he is frustrated with the requirement that his business maintain Sunday hours. The 53-year-old said he averages about $1,000 in sales on weekdays but on a recent Sunday he made $23.
Tariq Farid, president of Edible Arrangements, denied the allegations in the lawsuit and said any new operating procedures the company implements are intended to benefit its franchisees, not hurt them.
Mr. Farid, who founded the company in 1999 and began franchising it in 2001, declined to provide specifics on the profitability of the typical franchisee. The Wallingford, Conn.-based company has more than 1,000 outlets, and posted $425 million in systemwide revenue last year, up from $380 million in 2010.
Management has been investing more in social media and ecommerce, for instance, to help the franchise owners keep up with current consumer taste. “At the end of the day, if you deliver results, they’ll respect you,” Mr. Farid said of franchisees.
