In a right pickle - my business after maternity leave

blondie4281

This isn't strictly about money saving - more money problems! I need advice from an objective person!

I own a franchise. It is very successful, and I have spent 4 years building it up. Last year I went on maternity leave, and a fabulous (in most ways) person took over to run my business for me while I was off. This was a person I had advertised for and chosen myself.

Towards the end of my maternity leave, the person said that she really wanted to stay on, and said she wanted to buy my business from me. We agreed a figure, but when it came to it she couldn't get a loan.

She gave me a 1/3 of the money as a 'deposit' on the business, and we agreed she would continue to run the business, and to 'rent' the business from me until March of this year. She insisted that her bank had agreed her loan would be able to go through once she has been running the business more than 8 months.

Meanwhile I started the franchise again in a new area.

Come March, again she could not get a loan. I reluctantly agreed that we could extend the temporary contract to an indefinate one, where she continues to pay me rent until the amount owing for the business is paid in full. I did however state that I wanted 1/3 of the customers returned to me. To enable her to allow for this drop in custom, we agreed she could have a 3 month 'payment break' - she is due to start paying me rent again for my business in June.

She has just contacted me to say she cannot afford to pay me rent for the business and is asking for an extension of the payment break by a couple of months.

My new business is only 6 months old, and not bringing in the income I require to pay my bills just yet. I was relying on the money from her. What should I do?

Please let me know what you think. I am so bogged down with it all, I can't seem to think clearly. I have tried to make this account factual rather than including all the emotional stuff!

Horace

Were these verbal agreements that you made with her or did you seek the advice of a solicitor when drawing up the agreements? I would now be seeking legal advice to see if you can sell the franchise from under her.

jexygirl

I would agree with Horace - I would also ask if these "rent to buy" payments have included interest, as you are effectively loaning her the money (as in she is running it as her own buisness) and paying you off in installments (rent).

Annisele

I'd also agree that you should seek legal advice.

Before you do, I think you should also think about what you want to happen now (because it saves time to start to think about it before you speak to a lawyer). Plus, you should get together any documents you have, plus any other proof that you did have an agreement (for example, bank statements that show that she paid you £x per month for y months).

Do you want to sell the franchise to somebody else? Do you want to start running the original business again?

blondie4281

We have a legal document for the original contract which expired March 2010 (after it was extended). We currently have nothing agreed in writing. The master franchisor has had his solicitor putting it together but it has been delayed.

This is where emotions come in . I feel for her. I know she loves the business and desperately wants to continue to run it. However, firstly I know that she entered into a debt management plan in December which crippled her credit rating. She confided in the Master Franchisor but asked him not to tell me. This is why she could not get a loan.

Also - I know I cannot keep up with customer demand, only working 3 days a week if I took the business back.
- My husband has been made redundant and will be unemployed as of June 30th. He is the main earner in the house at the mo.
- I am concerned that the business may lose customers if the business changes hands again
- she has paid 1/3 of the amount due - so effectively part of the business is hers. I don't have the heart to tell her she has lost that money. I now know she used credit cards to pay it.
- I am concerned as to what she will do with the business if I took it back. I do not 100% trust her not to deliberately ruin my reputation if I told her to take a hike.

Argh!!! I think I may have to just swallow it that she cannot pay rent for the business. In answer to one reply - no, she is paying no interest.

TM1976

"However, firstly I know that she entered into a debt management plan in December which crippled her credit rating."

Sounds harsh but basically this means you really should be worried about lending money to this person.

"she has paid 1/3 of the amount due - so effectively part of the business is hers. I don't have the heart to tell her she has lost that money."

What does this amount look like if you take off the rent she owes you?

If she is really good at running the business but not the finance is it possible you could pay her a wage to run the business rather than sell it to her?

Horace

There is no room for sentiment in business - should she have taken on the franchise knowing that she was in a DMP in the first place? The time has come for you to seek legal advise and not wait for the franchisor to sort it out. As the previous agreement expired in March this year and there is currently no agreement in place then she may be classed as being in breach of contract - again you need to seek specialist advice.

Remember that due to her inability to pay you are left trying to run your own business, sort out the mess she has created and then support your husband who has been made redundant. The person you should be thinking about now is you.

Savvy_Sue

Is it something your DH would want to be involved in, and could you then make enough to live on, do you think?

jexygirl

As sue says, would hubby get involved? Sounds like a great buisness if you have started a 2nd franchise.

I know how you feel - you and I will never be rich from being in buisness, Im too sentimental too (We had a guy booked in for a week last week, who comes every year, in his brand new merc, because, he and his wife used to come here every year, and since she died he still comes, the same week every year, like they used to, he is a wonderful old chap, who is adorable, he extended his stay by 5 days this time and I said to take off the single supplement because he is lovely and I feel sorry for him - 12 x £15, Im paddling like mad to keep my head above water! I drive a junk box, he comes in a new merc every year - that has never gone over 40 mph!!! Im a softee too!)
My issue is I think too much - that equals BAD buisness person!!! Get your buisness head on!

I know you feel for her, and also that you worry about your reputation, but, your customers knew you prior to mat leave and still do.

I am not saying cut her out. Can you give her 1/3rd shares in that franchise, so she has 1/3rd the outgoings with you, and also 1/3rd the profits when they come (as I think, if you get fully involved with it again, you may well find its doing fine, just that she is using the "profit" to pay her way, and not paying you the rent, because you are not insisting on it) that way, she retains 1/3rd of the franchise shares, remains running it (that way she has to still work at it too) but you are in control of the books / figures and she will earn her share.

you said it was a good franchise. Given her history, and the fact she bought 1/3rd on credit cards, ( and lied to you saying she would be able to get the loans, when she knew she couldnt) signals to me, that she cant pay the rent because she over stretched herself and what with bills, payment plans and CC payments, you are last on her list to pay because she knows she can play you, you have been more than generous so far as far as I can see, with interest free payments and rent free periods. You need to take it back, for your sake and hers, but let her keep the 3rd share perhaps?

Basically say ok, the initial deal hasnt worked out, I will accept, that you did buy one third though, so this is how it will be - you run it, you take 1/3rd of the "profit".

At present, she has all profit for 1/3rd ownership... this way you arent selling from under her, but you are taking back control whilst still involving her. She has to see that you are not her benefactor and not there to support her financial short comings. You have your own life to worry about and she isnt your responsibility. You have to get tough, think of you. AND MAKE IT LEGAL!!!! If she kicks up a fuss, let the solicitors handle what you feel you cant.
I have an AGA hanging over me from a pub I sold 3 years ago, they want 19k I dont have, for the new landlords rent arrears, he is still there and trading well afaik, and yet i feel sorry for him because he lost his son. If I am forced to pay the AGA, I will go bankrupt, lose my home and buisness, and everything i worked 80 hours a week for, for the last 12 years and its cost me my marriage.... after a load of emails, I am leaving it to solicitors, as I cant deal with the "human factor" anymore. Please get tough, take yourself out of it, and read your posts / situation as if it belonged to someone else and then see what advice you would give.

Jex

paulwf

blondie4281 wrote: »

This is where emotions come in . I feel for her. I know she loves the business and desperately wants to continue to run it. However, firstly I know that she entered into a debt management plan in December which crippled her credit rating. She confided in the Master Franchisor but asked him not to tell me. This is why she could not get a loan.

Good lord. I would be absolutely livid at the master franchisor. Are they seriously cut out to be a franchisor? Any franchisor with any sense when told the prospective buyer was on a DMP should have had a word with you immediately to avoid this mess. I also can't believe they authorised the pay 1/3 now and rent the rest arrangement, this doesn't seem to be a serious franchise setup.

I'm wondering what the new *really* franchisee wants to do? They have dug themselves into a hole effectively by committing to buy the business that they can't afford and probably don't know what to do now. Have you said to her "look, I know you can't afford this so it is obvious the purchase isn't going to complete, how can we sort this?" So far it sounds like both sides have been keeping up the pretence that this deal will go through and she has been going along with it. I think it is time both parties realise that isn't going to happen (it sounds like you have to be fair) and work from there.

Next step is to read the riot act to the so called "master" franchisor Sounds like the sort of setup where you would be better off going it alone TBH.

nzmegs

So effectively you own two thirds of the business and she owns one third. Perhaps the answer is to allow her to continue running it as a manager/part owner. Give her a salary. You get two thirds of the profit and she gets one third. if at some point in the future she wants to buy the rest from you then you can decide on a price then.
if you trust her and like her then you could have a good business between you. Just try to work it out amicably.