THE BIZOP NEWS

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I cringe whenever I read things about how when the economy is down, it is good time to buy a franchise.

A down economy could seem the perfect time to hunker down, hold on to the job and wait for it all to be over. But for those who study entrepreneurship -- and those who've started businesses during a recession -- a downturn provides great opportunities.

It requires, however, common sense and a great idea that has a chance of scaling. "During a boom time, when there's plenty of money available for everyone, good ideas and projects can be competed into mediocrity," said Bob Hendershott, an associate professor at Santa Clara University's Leavey School of Business and a specialist in entrepreneurial finance.

And when the same article starts praising an ATM franchise, I get very worried.

"In San Jose, ACFN Franchised Inc. President Jeff Kerr launched his business placing ATMs in hotels and airports in 1996, but decided to spin it into a franchise business in 2002. Even after the dot-com bust and the terrorist attacks of Sept. 11, 2001, the business wasn't hit hard because Kerr ran it lean.

Rents decreased as a result of the economy, and that helped Kerr find Class A office space in downtown San Jose. Low interest rates allowed him to buy and finance equipment, while the unemployment rate enabled him to hire a talented marketing department.

ACFN has since sold 128 ATM franchises in the U.S. and Canada, and it became one of the fastest-growing companies in the country, listed in Inc. Magazine.

Vending machine and ATM business opportunities are so dubious that the FTC has a special page on their website warning against vending machine and ATM business opportunities.  The FTC list of lawsuits against vending operators is lengthy.

Since ACFN advertises itself as a franchise, I thought that this would be an easy investigation.

Go to Caleasi, and search for ACFN.  And when it was not registered as a franchise, complain loudly in print.

But I was wrong.  ACFN is a registered in California to sell franchises.  

In fact, the disclosure document is better than most, disclosing the basis for their financial performance claim, also known as an earings claim.

Of interest is ACFN's earnings claim chart goes only from 1-12 transactions a day, compared with scam artists who give you a chart from 10 - 40 transactions a day, heavily anchoring in you on transaction figures between 10 and 40.  ACFN's earning claims provides you with a reasonable numbers to begin your investigation.

When investigating any franchise, I always start with the item 20 disclosure to see how many franchisees are not longer operating for whatever reason.  I looked at the item 20 for 2007 and the item 20 for 2008. 

As ACFN grew, it lost 5 operators along the way.  Depending on how you calculate it, on growth or number of units, this represents between a 5% and 10% loss of operators, which at 10% is on the high side.

On the other hand, the level of disclosure is remarkable candid for a FDD.  You learn that ACFN makes about $1000 per sale of Trinton ATM to you, you learn how much money they make in processing fees.

However, I believe that the franchise fee at $29,000 is way too high and give how much money ACFN makes in processing fees, it would make more sense to have a lower or nominal franchise fee.

The other problem is that "Triton is usually referenced as a low-end, limited function ATM", and other models might be more suitable to your area.

But high marks go to ACFN for their level of disclosure in their FDD, candid remarks, and earnings claim.