fr a nc hisors, d e spit e the "vi sua l appe a l and d e ve lo pment" of inter n e t g ra phi c s, sale s of this t y p e
will not t a ke plac e witho ut m ore dire c t i nspe c ti on, mee ti ng s, a nd t ra dit ional " mar k e ti n
g a nd
sa les" te c hniques.
I n m y jud g ment, a ll of th e de ve lopi n g tec hnolo g ie s a nd c a pa bil it ies r e p re se nted b y the inte rne t
a nd other c omput e r a nd h ig h
-
te c h inventions onl y se rve to i nc r e a se th e wa y s that pe ople c a n "g e t
to t he fir st per sona l m e e ti ng . " The s e
de ve lopm e nts do not ac tuall y re pla c e t ha t first per sona l
mee ti ng .
F urthe rmo re , I would a lso s trong l y ur ge that no c ha nge be mad e in re quiri ng the U F OC
disclosure doc uments t o be prov ided to pr ospe c ti ve fr a n c hises a t t he " fir st p e rsona l m e e ti n g , " but
not
be for e that unless the re wa s a fina nc i a l t ra nsa c ti on be ing made . Th e f a c t i s, the int e rne t and
tele phone modems a r e fu ll of " c a su a l i nquirie s" fr om people who ha ve no i ntention nor c ould
e ve r qua li f y e nou g h to ev e n ge t t o the sta g e of a " f irst per sona l m e e
ti n g . "
F ra n c hisors shoul d not have to assume the a dmi nist ra ti ve a nd fina n c ial bur de n of p rovidin g full
disclosure doc uments t o a ll of the se pe ople who inquire sim pl y be c a use o f the e a se o f e le c tronic
c omm unica ti ons.
Que sti on/Topi c : " S tre a m of Re ve nue " f ra n
c his e s.
C omm e nt/ R e sponse: Ess e nti a ll y , " S tre a m of Rev e nue " fr a n c hises a r e those whe re the fr a n c hisee
bu y s a s e t num be r of e it he r e x ist ing or soon to be e stablis he d a c c ounts fr o m t he fr a nc hisor, a nd
the f e e p a id b y th e fr a nc h isee is base d on the r e ve n ue tha
t t he se a c c ounts a r e g ua ra nte e d to either
provide ba se d on their e x ist ing ope ra ti ona l e x pe rie nc e or w il l provide b a se d on the f ra n c hisor ' s
e va luation of the a c c ount s themselve s.
The que sti on pose d wa s whe ther thes e t y p e s of f r a nc hises c onst it ute "e a rning s
c laims " a nd
ther e b y r e quire subst a nti a ti on of these e a rnin g s c l a im s ba se d on the pr ovisi ons of T he R ule.
I t i s m y posi ti on that " S tre a m of Reve nu e " fr a nc hi se s a re a bsol utel y to b e c onsi de re d a s
" r e pre s e ntations of e a rning s " a nd shoul d ther e for e be re qui re d
to provide t he sa me sta nda rd of
e a rnin g s c laims just ific a t ion, di sc losure , a nd his toric a l validation as is t he c a se with s tanda rd
e a rnin g s c laims a s pr e se n ted b y othe r f r a nc hisors.
B y de finiti on, these " S tre a m of Reve nue " f ra n c hises invol ve a spe c ifi c pro
mi se b y the f ra nc hisor
that the f ra n c hisee will e i ther inher it or be p rovide d with a c e rta in l e v e l of e ssentiall y g ua r a ntee d
income ba se d on the a c c ounts that he is pu rc ha sin g . I n fa c t, t his g oe s som e wha t be y ond a n
e a rnin g s proje c ti on or c la im . This i s, in
fa c t, a sta teme nt of e a rnin g s that ha s be e n " pa c k a g e d a nd
off e r e d for s a le " to t he fr a nc hisee .
C onse que ntl y , not onl y is t his an e a rnin g s c laim, b ut i t i s ra ther more sig ni fic a ntl y a " prima
fa c ie " c a se of di re c t r e pr e se ntation b y th e fr a nc hi sor of a c tual
e a rnin g s the fr a nc hise e will obtain.
On tha t basis, t he fr a n c hi sor is pot e nti a ll y li a ble n ot onl y for e a rnin g s c l a im viol a ti ons but for
a c tual " bre a c h of c ontra c t" if those a c c ounts do no t per for m.
7
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fr a nc hisors, d e spit e the "vi sua l appe a l and d e ve lo pment" of inter n e t g ra phi c s, sale s of this t y p e
will not t a ke plac e witho ut m ore dire c t i nspe c ti on, mee ti ng s, a nd t ra dit ional " mar k e ti n
g a nd
sa les" te c hniques.
I n m y jud g ment, a ll of th e de ve lopi n g tec hnolo g ie s a nd c a pa bil it ies r e p re se nted b y the inte rne t
a nd other c omput e r a nd h ig h
-
te c h inventions onl y se rve to i nc r e a se th e wa y s that pe ople c a n "g e t
to t he fir st per sona l m e e ti ng . " The s e
de ve lopm e nts do not ac tuall y re pla c e t ha t first per sona l
mee ti ng .
F urthe rmo re , I would a lso s trong l y ur ge that no c ha nge be mad e in re quiri ng the U F OC
disclosure doc uments t o be prov ided to pr ospe c ti ve fr a n c hises a t t he " fir st p e rsona l m e e ti n g , " but
not
be for e that unless the re wa s a fina nc i a l t ra nsa c ti on be ing made . Th e f a c t i s, the int e rne t and
tele phone modems a r e fu ll of " c a su a l i nquirie s" fr om people who ha ve no i ntention nor c ould
e ve r qua li f y e nou g h to ev e n ge t t o the sta g e of a " f irst per sona l m e e
ti n g . "
F ra n c hisors shoul d not have to assume the a dmi nist ra ti ve a nd fina n c ial bur de n of p rovidin g full
disclosure doc uments t o a ll of the se pe ople who inquire sim pl y be c a use o f the e a se o f e le c tronic
c omm unica ti ons.
Que sti on/Topi c : " S tre a m of Re ve nue " f ra n
c his e s.
C omm e nt/ R e sponse: Ess e nti a ll y , " S tre a m of Rev e nue " fr a n c hises a r e those whe re the fr a n c hisee
bu y s a s e t num be r of e it he r e x ist ing or soon to be e stablis he d a c c ounts fr o m t he fr a nc hisor, a nd
the f e e p a id b y th e fr a nc h isee is base d on the r e ve n ue tha
t t he se a c c ounts a r e g ua ra nte e d to either
provide ba se d on their e x ist ing ope ra ti ona l e x pe rie nc e or w il l provide b a se d on the f ra n c hisor ' s
e va luation of the a c c ount s themselve s.
The que sti on pose d wa s whe ther thes e t y p e s of f r a nc hises c onst it ute "e a rning s
c laims " a nd
ther e b y r e quire subst a nti a ti on of these e a rnin g s c l a im s ba se d on the pr ovisi ons of T he R ule.
I t i s m y posi ti on that " S tre a m of Reve nu e " fr a nc hi se s a re a bsol utel y to b e c onsi de re d a s
" r e pre s e ntations of e a rning s " a nd shoul d ther e for e be re qui re d
to provide t he sa me sta nda rd of
e a rnin g s c laims just ific a t ion, di sc losure , a nd his toric a l validation as is t he c a se with s tanda rd
e a rnin g s c laims a s pr e se n ted b y othe r f r a nc hisors.
B y de finiti on, these " S tre a m of Reve nue " f ra n c hises invol ve a spe c ifi c pro
mi se b y the f ra nc hisor
that the f ra n c hisee will e i ther inher it or be p rovide d with a c e rta in l e v e l of e ssentiall y g ua r a ntee d
income ba se d on the a c c ounts that he is pu rc ha sin g . I n fa c t, t his g oe s som e wha t be y ond a n
e a rnin g s proje c ti on or c la im . This i s, in
fa c t, a sta teme nt of e a rnin g s that ha s be e n " pa c k a g e d a nd
off e r e d for s a le " to t he fr a nc hisee .
C onse que ntl y , not onl y is t his an e a rnin g s c laim, b ut i t i s ra ther more sig ni fic a ntl y a " prima
fa c ie " c a se of di re c t r e pr e se ntation b y th e fr a nc hi sor of a c tual
e a rnin g s the fr a nc hise e will obtain.
On tha t basis, t he fr a n c hi sor is pot e nti a ll y li a ble n ot onl y for e a rnin g s c l a im viol a ti ons but for
a c tual " bre a c h of c ontra c t" if those a c c ounts do no t per for m.
7
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