The Maids Franchise Startup Failure
Selling The Business
Any individual who enters into an investment situation without identifying an exit plan, is more then a little shortsighted. The beginning of our strategy for this situation was initiated during Discovery Day. Fully aware that although it had been perceived as a very low probability, failure of the business could occur I asked "what happens if you must go out of business". What happened next is questionable at least in the minds of some individuals. I heard Dan Kirwan clearly state "we will buy it back from you". Since we were buying a territory that is an almost $100,000, knowing that the investment was a "hard asset" provided an exit strategy foundation.
To ensure that adequate funding was available, we secured an SBA loan of almost $150,000 as a supplement to our personal investment of $250,000. Assuming that what I heard Dan say was factual, money received in that transaction supplemented by personal funds would have allowed us to pay off the SBA loan if failure occurred. During a February 2014 discussion with Dan, when I asked about being reimbursed for the territory he said "I never made that statement". Close examination of the franchise agreement with The Maids revealed that once a franchisee ceases operation in a territory that territory becomes property of The Maids again. After Dan took the position that the statement was never made, I asked Marlene who was sitting next to me during Discovery Day whether she heard him make a comment about the general subject. She indicated that she heard the same thing that I thought I heard.
Long before the February discussion with Dan, we talked with the individual who has owned the Katy Texas franchise for over 10 years about the possibility of their buying our operation. During October of 2013, she (we will refer to her as Julie herein) indicated that interest in purchasing the business definitely existed. I talked with her husband (we will refer to him as LBT an acronym for Little Boy Troy) and some of the numbers were informally discuss. At one point LBT said "would you take $200,000 for the operation?" After LBT talked to several individuals currently owning franchises who had purchased operating territories, he requested a large amount of information which was immediately provided. Absolutely zero progress occurred all the way to the beginning of January 2014 except for Julie indicating in the middle of December through email that they heard from the bank and had funding in place and would be making us an offer soon. When they finally made an offer of approximately $150,000, we countered and settled on a purchase price of around $190,000. LBT extended the offer in writing and we accepted the offer in writing. The very next day, they informed us that they did not have approved funding for the transaction. We were shocked to learn that they had even made the offer in the first place without having funding in place. Who does that? A day later, they informed us by email that LBT went to the bank and raised hell and got their funding approved. For a few days, we felt that we had reached an acceptable point for exiting the business. We were more than a little surprised when we received an e-mail from LBT withdrawing the offer. He explained that Julie had developed some medical problem preventing her accepting additional stress. We suspected that they didn't actually have approved funding because of their withdrawal and lame excuse for the withdrawal. They had also started asking for other data like justification for discounts given to customers and RMS pricing for existing customers after the written acceptance of the offer. We provided every report requested and provided explanations for any discounts or pricing. Since we had been discussing them purchasing our location for nearly 5 months and had provided year-to-date as well as monthly data during the entire 5 months, we did not understand why they would suddenly question pieces of the data they had in their possession during the entire negotiation period. Were they so reckless that they did not even look at the YTD or monthly reports until after a written offer was given and accepted? The so-called discounts in question equated to about $600 in a month were sales exceeded $30,000. Were they really concerned about a mere $600 or was it a ruse to disguise the fact that they indicated more than once they had funding in place but in reality, their funding had not been approved? Given the fact that their next offer equated to about $30,000 for the RMS customers and the majority of the inventory, we suspect the funding fell through. This is especially evident when you consider LBT told us he had no intentions of purchasing the actual territory but wanted us to sign it over to them at no cost. The LBT acronym was selected because the only other time I experienced a person extending an offer, having it accepted then developing an excuse to justify (in their minds) withdrawing the offer was when I was very young and dealing with another Little Boy. That kind of behavior simply does not happen with grown men. We discuss litigation with our attorney and he was confident that we could succeed in court because of Breach of Contract, but decided not to take that route. Continuing operating the business would be necessary until the situation had been resolved and we simply could not afford negative cash flow of around $6,000 per month for an extended period.
During my conversation with Dan February 2014, he asks whether his talking with Julie and LBT to determine whether any interest in purchasing the operation still existed was acceptable to us. Dan asked about contacting them Friday and he called Monday talking on "the box" with two other people in his office to tell me that LBT had no interest in buying the business. Within a one week period, I sent an e-mail to LBT asking them whether they had interest in buying the equipment and customer list rather than purchasing the operating business. To my surprise, his answer was "yes". As our "negotiations" preceded, at one point in an e-mail he indicated that they were not interested in buying the territory. In the same e-mail he said they would pay the $5,000 transfer fee. When I asked why he had mentioned paying the transfer fee if they were not interested in buying the territory, I learned that what he meant was that he didn't want to pay for the territory. LBT wanted to receive the territory free of charge which happened because no alternative existed. In my humble opinion, they "stole" the territory. Ultimately they bought our customers, equipment and supplies for approximately $30,000. That is a significant "step down" from the original offer of about $190,000 and they realized essentially the same transfer of assets. He did not share what had changed in Julie's medical condition allowing her to tolerate stress associated with picking up the new territory and customers. Maybe it was one of those "miracles" similar to what is required for locating an honorable man in our society today...and maybe the price was finally right for their financial situation.
During LBT's very first visit to our offices, he announced "I am not buying qualified households with income below $100,000. That was his first step toward making very sure that he obtained as much as possible from us for the absolute minimum dollars. While this is a reasonable objective if you are a business person who plays "hard nosed" all the time but was not expected from another franchise. LBT stressed several times while negotiating to the $190,000 offer that buying the business would be a very positive step for them. Apparently they could have paid $190,000 for the business and benefited significantly from the transaction.
My perception is standard procedure within The Maids is if a franchise appears to be failing screw the hell out of them. If you learn that they don't have an alternative you can just wait them out. The franchise agreement requires anyone shutting down an operation to provide a customer list to TMI. It only makes sense for TMI to want to sustain business with existing customers and the most effective way to accomplish that objective is to give the customer list to another franchise operating in the area. So if you are a successful franchisee operation in the same geographic area of a franchise that is headed for failure or shutdown for any reason, you have two choices. You can negotiate and pay a "fair" price for the business or you can squeeze every dime out of the poor franchisee who has no choice but to discontinue operation.
With the exception of the indicated conversation with Dan, there was no communications with The Maids in Omaha once they learned we were going to shutdown the business. In my naive manner, I expected them to be at a minimum sympathetic. After all, a Franchisee had lost over $400,000 which is a life altering experience for most anyone. It seemed that they had loyalty but it was all allocated to the Franchisee who was buying. I don't have first hand information about whether or how TMI assisted LBT during the transaction but I am firmly convinced that it did happen.
Looking back on our experience, it appears that maybe the most successful operators of franchises reach that point by sitting and waiting for someone like us to invest 18 months of unbelievably hard work along with $400,000 then buying the operation in "fire sale" mode. Do not expect to receive any relief provided by an existing franchisee who pays you a "fair price" for your business because on the basis of our experience it will not happen. Do expect to be "skinned" by an existing franchisee buying your operation.
Before you will be allowed to sell your business to a potential buyer, they must be "approved" by the corporate office. In your franchise agreement you are clearly told that only people who have completed training in Omaha will be allowed to buy your business. Since training is only provided three or four times each year, that rules out almost everyone except her franchise owners who have already completed the training. It almost seems to me that the business is structured to enable existing franchisees to benefit from negative experiences of new investors.
Summary of experience
The Saga - Detailed Account Of Franchise Startup Failure
Is Molly Maids Equivalent To The Maids?
Demands of Managing Operation
Hourly Manpower Problems
Professional Manpower Difficulties - Field Managers
Franchises Do Not Fail - They Just "Go Away"
Need Money - Find An Angel
Selling The Business
Owner QualificationsSuccess Motivation