Submitted by Jim Herst on Sat, 2007/10/27
A Multi-Unit Franchisee Sees Debt Trouble With Lease Commitments From Expansion
Ira Gershwin wrote of Poor Jenny, who didn't have a penny, and that's about the same as a franchisee debtor who asked us for help. The problem, leases! The ZEE had three gift-goods stores in a thriving summer vacation/tourist city on the mid-Atlantic coast. Store one was downtown. Store two was in a shopping mall. Store three on a boardwalk by the beautiful sea, tourist infested from 10 AM till midnight seven days a week, but only about five months a year. Each lease ran to his corporation, and was guaranteed personally. The ZOR was not a party to any of the three leases.
Our debtor/client/franchisee, thrilled with profits since 1997 from store one, simultaneously ventured growth by expanding to the mall and to the boardwalk. Problems soon affected the other two locations. The mall had never attained substantial occupancy. Traffic was less than touted by the developer, one of the largest shopping center operators in the country. The year 2006 was a disaster; sales at all locations were less than half of 2005 sales. The cash crunch was excessive. By spring 2007, store sales at the mall were half the monthly rental.
We were hired.
As of June 1, 2007, the remaining 34-month term of the mall lease was a potential rent liability of $207,795.00. Our intercession enabled a settlement and mutual release for $18,000.00, payable in three equal monthly payments of $6000.00 each.
The boardwalk lease was tougher. A decision was made to stay through the summer of 2007, expecting sales and profits would occur. They didn't. Here, the potential rent liability was far less. As of September 30, 2007 it would be $31,395.00 through December 31, 2008. Actually this became a tougher negotiation ending with an achieved settlement of $1,680.00. Many factors affect lease settlement and most commercial leases offered by experienced developers are bulletproof.
Why tell all this?
From a franchisees point of view, he was euphoric over profits earned from his initial store. Because he was dealing with local rental agents, people he knew, he felt he had no need for representation to oversee his rental commitments which he felt would support his growth and profits. He might have asked his ZOR for help; I don't know if it would have been available. Most likely the ZOR would have encouraged expansion, and might well have been helpful in providing some safeguards for the ZEE's possible setbacks.
When dealing with professionals, seek professional assistance. This was proven at both ends of this situation. If you are facing any area of debt problems, I again invite your anonymous submission for review.
Jim Herst is president of Performance Source Inc., a nationwide strategist organization serving business managers with credit restoration and payment settlement systems in addition to designing cash flow processes. More information about his 45-year-old firm is available on site at performancesource inc. Or Call Jim at 800-883-5080.