Multi-Unit Franchisee Magazine Issue II, 2013 | Page 62

Protect Your Assets!

“Sometimes you don’t know whether to
focus on growing or protecting your
assets. You’ve reached a certain stage of
asset accumulation or comfort, and you
want to protect it.” —Grant Simon
Other aspects of asset protection
include data breach security, employee
(mis)behavior and lawsuits, social media,
and a raft of others.
“Asset protection has many different
meanings to multi-unit franchisees,”
says Aziz Hashim, who operates 50
restaurants (Domino’s, Popeyes, and
Rally’s) in Georgia, Florida, Arizona,
and California. “For me, the issue is
one of protecting the equity that has
built up in the business against unforeseen risks, and particularly uninsured
risks.” Hashim noted three areas in
particular, among the many MUOs
must confront:
1. Liabilities resulting from government actions, such as wage and hour
lawsuits, which are not insurable.
2. Unfair termination or loss of renewal of a franchise agreement (and the
constant reminders that franchise agreements are term bound; many franchisees
are under the false impression that they
have rights forever and that renewals are
“automatic”).
3. Government action such as eminent domain, where a great site can be
rendered useless or be forcibly taken for
pennies on the dollar. “For a multi-unit
franchisee in a major city, it’s an issue,”
he says. “As traffic problems rise, municipalities respond by expanding roads,
creating medians, etc. In my career, I
have lost one location totally, and had
two or three others suffer considerably
by center medians. These were significant losses.”
The keywords here are “unforeseen”
and “uninsured” (or underinsured). And,
as onerous as insurance can be, in an
overly litigious society, it truly is better to be safe than sorry. The amount
and type you purchase will depend on
your tolerance for risk (sleeping well
at night), as well as your organization’s
stage of development.

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Multi-Unit Franchisee Is s ue II, 2013

Grant Simon

Corporate structure

As multi-unit franchising has evolved,
many franchisees have formed different
entities for each of their units, with each
location set up as a separate corporation.
That protects you from certain liabilities, says Robins, and could allow you
close a location if you can’t work it out
favorably with the landlord or franchisor—though not always with the franchisor, if you have other locations with
that brand.
“I know other franchisees use this,
but I have no idea what percentage.
Most I know run under one large corporation,” says Robins. “You can insure
against some of the risks of the additional
liability concerns you may have, for ex-

ample, if someone sues you at a specific
location, by getting an umbrella policy
for the large corporation.”
However, “To set up separate entities
for each corporation, you have to file
separate tax returns, payroll, and P&Ls
for each, which can be quite burdensome with a lot of locations, when you
could be protected by one policy,” he
says. “That’s one strategy we use, so we
probably pay some increased amount,
not overwhelming, to make sure we’re
well insured and that would protect
some of our assets.”
Although incorporating protects
your personal assets, “If you don’t behave
like a corporation, you lose that protection,” warns Robins. Proper corporate
behavior includes holding regular board
meetings, taking good notes, and keeping your personal and business accounts
separate. “If you’re commingling business and personal, a smart attorney will
be able to pierce the corporate veil and
get to your personal assets.”
Simon, on the other hand, has his assets in four separate corporations, one for
each of his three brands and another for
his real estate business. “With the real
estate, I have one real estate company
that manages residential house rentals,”
he says. “Some people put each house
into an LLC, which probably is advantageous, but I never did that. I’m probably
due to go to an attorney to talk about my
structure to be impenetrable.”
When he started out, his first company was an S corporation. LLCs hadn’t
come along yet, and his other three
companies are LLCs. “An LLC affords
the same amount of protection as an S
corp, and it gives me more flexibility.”
Simon keeps his four corporations
separate. “I haven’t cross-collateralized
any of those, and I try not to give personal
guarantees on leases,” he says, although
he still has locations open from his early