The UPS Store Due Diligence
Here are two excellent observations, which highlight the difficulties of due diligence on a UFOC. Read both the post and the comments,
The UPS Store, Tales of Gore | Blue MauMau
In reference to many people always talking about Due Diligence, I have a question for the legal guru's out there. In the most recent The UPS Store FOC/FA, as all FOC/FA's, there are the Risk Factors that are disclosed.----
The first one, concerns the pricing of services. THE FA glorifies that you are able to set your own prices on ANYTHING other than shipping. That is fine. What they have failed to tell you, is the 50-75% of your business is FROM shipping. This is by far, your largest profit center that someone else controls.
From the FA:
8. Pricing of Products and Services
You fully understand that although MBE publishes recommended pricing policies for product and services other than UPS shipping services, as an independent business owner you are free to establish your own pricing for products and services other than UPS shipping services, sold in your Center. Should you elect to price such types of products and services too low, you may adversely affect margins; and
should you elect to set prices too high, you may lose business to your competitors. In either case your profitability will suffer....
The second one,From the FA:
14. Risk of Competition
You understand that each of the profit centers and services provided in your Center may be provided by others, including mailbox service, copying, packaging, and shipping and that new competitors, including well-established entities, such as the U.S. Postal Service, may appear at any time and may locate any type of retail outlet within your exclusive franchise territory.It is also possible that another Center may be located adjacent to your franchise territory, and depending upon circumstances, may even be placed ON THE BOUNDARY LINE of your franchise territory (but outside of your franchise territory). Any of these events may adversely affect your operations and profitability. You further understand that any “exclusive uses” you have in your Center lease may not be honored by your landlord or may not be enforced by a court.
This is the type of observations that you can obtain in your due diligence process, as long as you know how to ask the right questions.
You will never get to these questions if you leave off reviewing the UFOC to the ten days before you sign the franchise agreement.
The real question here is how you would find out what the reality behind the "may" clauses amount to.
One important tip, is to run the franchise agreement through a conversion program and highlight the number of times the franchisee must do something versus the number of times the franchisor must do something; the number of times the franchisee may do something and the number of times a franchisor may do something.
You need to force the franchisor to change some of the "may" to a "should". If you encounter resistance, the franchisor's attorney saying that "may" gives them more options, tell them the story of Ulysses.
In, Greek mythology, Circe warned Ulysses of the dangers of these singing creatures who pulled men to their death. She advised him to avoid hearing the song but that if he really felt he had to hear, then he should be tied to the mast. Imagine the consequences, if Ulysses's attorney had advised him to change the "should" to a "may".
