(FranchisePick.Com) The Fortune Small Business article on the new changes in franchise disclosure rules (New franchise rule: More disclosure, same high risks) opens with an horror story illustrating why many believe that current regulations regarding the sale of franchise investments do not go far enough to adequately inform and protect franchise buyers. The negative franchise example they selected is one we’ve followed extensively at FranchisePick.com: Fitness franchise Butterfly Life.
New franchise rule: More disclosure, same high risks
A decade-in-the-making revision of the FTC’s Franchise Rule requires franchise owners to disclose more data, but it doesn’t bring the change franchisees say they most need: documented financial projections.
by Ian Mount February 29 2008: 5:17 PM EST
(FORTUNE Small Business) — If Beth Tomei had only known.
In November 2004, the Walnut Creek, Calif., fitness club owner signed a franchise agreement with the Butterfly Life women’s fitness company in hopes of cashing in on the company’s Curves-like business circuit training plan. Soon, however, she realized all was not right: she learned that 12 of the company’s 16 California franchises were failing or had failed, she says; that the start-up costs would be close to twice those claimed in the company’s franchise prospectus; and that the oral profitability claims she’d been given were mostly wishful thinking.
This day, down $450,000 in savings and home equity, she is part of a group of franchisees involved in a class arbitration claim against Butterfly Life.
“If they had been required to disclose more and do it more clearly, I think a lot of heartache could have been saved and would be saved for future franchisees,” Tomei stated. A Butterfly Life representative didn’t return calls for comment.
It seems that Tomei may get her wish. Since 1995, the Federal Trade Commission (FTC) has been studying ways to update the Franchise Rule - the regulations governing the sale of franchises to aspiring business owners - to make it more consistent with state regulations. On July 1, the fruit of 13 years of internal meetings, public workshops and industry comment becomes real when the new and improved Franchise Rule goes into effect.
But while Tomei and other franchisees and franchisee recommends applaud the changes, many state the new rule falls short of being the far-reaching revision needed to protect prospective franchisees from the abuses reported in an FSB cover story two years ago, “Risk/Reward.” Instead they, echo Susan Kezios, the president of the American Franchise Association franchisee group, who wrote in a current industry trade publication article: “The FTC labored a dozen years to revise its Franchise Rule - only to give birth to a mouse.”
Butterfly Life Franchise Posts on FranchisePick.Com:
February 24th, 2008 George Orwell Returns to Bash 1-2-3 Fit, Butterfly Life Fitness Franchises
February 15th, 2008 Article Scrutinizes Quiznos Rick Schaden, 1-2-3 Fit Franchise, Butterfly Life Franchise, Contours Express Franchise & Fitness Franchise Woes
January 18th, 2008 Butterfly Life Franchise Lawsuit in Forbes
December 20th, 2007 Troubled Fitness Franchise Butterfly Life Lowers Franchisee Royalties
December 18th, 2007 Butterfly Life Chairman Gergley Offers Commissions to Ex-Franchisees
December 9th, 2007 Franchise Pick’s Most Volatile Posts of 2007: A Wrap-Up
September 25th, 2007 Franchise Dreams Becoming Nightmares for Many Fitness Club Owners
September 12th, 2007 Will the REAL Butterfly Life Franchise Please Wave Its Wings?
May 10th, 2007 IS BUTTERFLY LIFE A GREAT FITNESS FRANCHISE?
WHAT DO YOU THINK? YOUR COMMENTS ARE APPRECIATED; YOUR INPUT IS VALUED.
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