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(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.”

READ ON

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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(FranchisePick.com) Pure Weight Loss Adds Insult to Injury Part 1: Pure Weight Loss Members, out thousands of dollars from the company’s abrupt closure, have their refund claim forms returned as undeliverable. Add lost time, postage costs, aggravation.

Pure Weight Loss Adds Insult to Injury Part 2: Pure Weight Loss offers stranded members discounts to an program… a program not available in their area.

Announcing Pure Weight Loss Adds Insult to Injury Part 3: Bounced refund checks… and NSF bank charges.

On HOW MUCH DOES PURE WEIGHT LOSS OWE YOU? FranchisePick.Com contributor and ex-Pure Weight Loss (LA Weight Loss) member Kim Matunis writes:

I got a refund check for $84 (they owed me over $1000) and it bounced!! THe bank said the account it is written on was closed in December 2007. I am filed with the PA Attn. General’s office….hope we get somewhere.

I’ve no clue how much they owe exactly, bought extra weeks on sales, paid some regular weeks, they took my copy of my contract when I applied for the refund, so I do not even have that. Trying to get receipts and credit card statements organized.

GOd help us all

RECENT PURE WEIGHT LOSS POSTS:
February 25th, 2008 Did HONESTY Kill Pure Weight Loss? or LA Weight Loss: The Motion picture
February 22nd, 2008 Pure Weight Loss Meeting of Creditors Set for March 14
February 20th, 2008 Pure Weight Loss Employees Also to Suffering Losses
February 3rd, 2008 IS PURE WEIGHT LOSS VIOLATING HIPAA PRIVACY LAWS? (Part 2)
February 3rd, 2008 IS PURE WEIGHT LOSS VIOLATING HIPAA PRIVACY LAWS? (Part 1)
January 31st, 2008 Pure Weight Loss Adds Insult to Injury Part 2

WHAT DO YOU THINK? YOUR COMMENTS AND INSIGHTS ARE APPRECIATED.

PHOTO CREDIT: Marchivist.   Licensed under Creative Commons.

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Tags: , bankruptcy, closing, franchise, franchises, LA WEIGHT LOSS, loss, PURE WEIGHT LOSS, refund

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(FranchisePick Franchise Blog)  Thanks to the readers and contributors of FranchisePick.com, our pages contain a wealth of great franchise buying advice from insiders and franchise owners you’ll find nowhere else.  If you’ve got a question, post it and you might get a thorough and insightful answer, such as this one regarding the purchase of an existing Curve fitness franchise.  Thanks to Kunst for his/her response. 

RMZ asked:
“I am considering purchasing an existing 2.5 year old franchise in a community of 4200 (2500 women with the median age being 45.5) that has one other full-service gym.
The current owner is absentee and has actually moved to another state. Current membership is 223 with 07 gross sales of around $80K, expenses of $55 and cash flow of $22K. The owner has not advertised at all in 07, but spent about $2,000 in advertising in 06. 07 gross sales are about 25% less than 06.
“The asking price is $30K. What do you think?”

Curves for Women franchise owner Kunst replied:

“One of our clubs is similar to this. About 10,000 population and 231 members. One full-service independent gym. Our revenue and expenses are higher (your club must be at $29/month; ours is at $39). P&L profit about $16,000 last year. The problem with this situation is the population. As with all gyms, 1/3 to 1/2 of your members are going to leave each year. That means you’re keeping them on average 2-3 years, which is good, reasonable, and normal. The problem is replacing them. It is true in general that Curves membership levels are down significantly over the last several years, and the main reason is that it’s hard to replace the members you lose. In a more massive community, there are fresh faces all the time, but in a smaller community like the one you’re talking about, this is probably not the case. One reason the owner hasn’t advertised is probably because everyone knows Curves is there and either is a member, was a member, or knows people who are members. The ideal marketing for that kind of community tends to be people-gathering events, which is more demanding of time than money.

“Here’s what I suggest to anyone considering buying a resale club:
1. Get a 2007 P&L from the owner, preferably with each month in a separate column. Analyze that puppy until you fully comprehend it.
2. Make sure you comprehend the membership numbers and how they relate to revenue. Look at product sales. If this area has been neglected, it might be an improvement opportunity for you.
3. Ask for the membership numbers by month since the club opened. You will probably see an initial spike that reached a peak and has been dropping for some time. It might or may not have leveled out.
4. Marginal (i.e., new and cancels) membership changes pretty much go straight to the bottom line. If membership drops, revenue drops with it.
5. Sometimes a new owner can energize a club and raise it to a higher level. Sometimes not. Do some due diligence and make the case both for and against this.
6. Speak to everyone you can about the club. If possible, speak to the employees. Talk to members. Have your wife join if that is feasible, or work out there on a travel pass if she is a member at another club. Most important of all, talk to every Curves owner in the area. Most will be very willing to take the time to answer your questions and give honest advice.

“Is $22,000 an adequate return for you? Make sure that number is real. If you don’t have to spend a lot of time, that’s a pretty good return on $30,000 but it’s not enough to live on. Because we’ve four clubs, we do just fine on per-club profits that wouldn’t be adequate for most people if they have only one club. Are you going to maintain the same staffing structure? How do you intend to run the club? It usually doesn’t work well when the female owner isn’t engaged enough. Our comparable club has 3 employees and my wife manages it by phone and by being in there 1-2 times a week. Our other clubs have managers and she spends about the same time on each of them. She does not work in any of the clubs on a regular basis. She’s an absolute expert on every aspect of Curves operations, which gives a solid foundation you won’t have at first.

“We have really good employees who have been with us (4 clubs) on average almost 3 years. Employee turnover is no fun, so make sure you’ve a handle on this and a plan for how you would handle someone leaving.”

WHAT DO YOU THINK?  COMMENTS WELCOME.

Tags: Curves, CURVES FOR WOMEN, Curves franchise, Curves resale, fitness franchise, franchise, franchise resale, franchises

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