When Stuart and I made the decision to walk away from our EzyDVD franchises in July 2007, it was tough.
The suppliers – we could deal with. In fact, according to our calculations, if we sold everything, sent back stock etc, we would cover the supplier debts and our business loans. What really scared us, was the Leases on the shops. We still had 18 months and 2 1/2 years to go on our leases and the provisions were pretty stringent.
We were required to have a bank guarantee equivalent to 3 months rent… these guarantees were required at the start of the lease, based on our rent in 2003, not the current rent as at 2007. Regardless, the guarantees were about $24K each… so we had $48K of our money tied up in a guarantee with the bank….
Guarantee to pay…
Under the terms of the leases, we as Directors had given personal guarantees that the rent would be paid. If the businesses failed to pay the rent, then the Centre’s could chase us personally for the arrears…and for continuing payment until the shop spaces were re-let at a similar price or the leases expired.
At the time of departing the retail scene, we were paying approximately $10K in rent a month, per store.
Sure, the $24K per store in bank guarantees would cover some of that, but not all.
Yes, maybe we wouldn’t be held responsible for anything more than 3 months… but we really didn’t want to take the chance.
My point being, is that even if we closed the stores — we were still faced with a $20K bill each month… worst case… for 18 months or 2 1/2 years… Not an appealing prospect.
So… when I saw Stuart post about this EBay Ad – I understood immediately where the Franchisee was coming from…
Seriously… I feel for this Franchisee. This is a terrible situation to be in. This Franchisee has put blood, sweat and tears into their business; the Franchisor has not done the right thing by them and they have received legal recourse for that; and now they are faced with the fact that, according to their EBay Ad, due to poor management by the Franchisor they now can’t get stock. If they can’t get stock, they don’t make sales — NO INCOME! However, the Franchisor went into receivership – they are no longer responsible for the ruling made by the court. The business was bought out by another Company – who is not bound by the same agreement.
So, this Franchisee is now holding a store that can’t get stock, so there is no income. They have a commercial lease, which is $14.5K a month.
Even if they decided to ‘crash’ the store… they are still faced with the prospect of covering that lease until its expiry.
Given the recent closure of the two Canberra EzyDVD stores, one wonders what the new Franchisor (FEG) is actually doing to help these guys who spent a lot of time and energy making the EzyDVD brand what it is today.
To whoever the Franchisee is… You have my thoughts and my energy for a successful outcome for you. I am so glad that regardless of our terrible financial situation today, we got out when we did – it could be a whole lot worse.