When Arlene Ryan inherited $250,000 from her grandfather, shedecided to use the money to start her own business. Arlene has beena legal secretary for 14 years and feels she knows quite a lotabout business. “Every day I take depositions and type legalmemoranda,” she noted to a friend. “And I’ve seen lots ofbusinesses fail because they didn’t have adequate capital or propermanagement. Believe me, when you work for a law firm, you see—andlearn—plenty. Almost six months passed before Arlene decided on abusiness to pursue. A franchise ad in a business magazine caughther attention; Arlene called and found out that the franchisor wasselling fast-food franchises in her area. “We are in the process ofmoving into your section of the country,” the spokesperson toldher. “We have 111 franchisees throughout the nation and want tosell 26 in your state.” Arlene went to a meeting that thefranchisor held at a local hotel and, along with a large number ofother potential investors, listened to the sales pitch. It allsounded very good. The cost of the franchise was $150,000 plus 5percent of gross revenues. The franchisor promised assistance withsite location and personnel training and encourages the prospectivefranchisees to ask questions and investigate the organization. “Ifyou don’t feel this is a good deal for you, it’s not a good dealfor us either; good business is a two-way street,” the spokespersonpointed out. “We are going to be looking very carefully at allfranchise applications, and you ought to be giving us the samedegree of scrutiny.” Arlene liked what she heard but felt it wouldbe prudent to do some checking on her own. Before leaving themeeting, she asked the spokesperson for the names and addresses ofsome current franchisees. “I don’t have a list with me,” he said,“but I can write down some that I know of, and you can get theirnumbers from the operator.” He then scribbled four names andlocations on a piece of paper and handed it to her. Arlene calledinformation and was able to get telephone numbers for only two ofthe franchises. The other addresses apparently were wrong. She thenplaced calls to the two franchisees. The first person said she hasowned her franchise for one year and felt it was too early to judgethe success of the operation. When she found out Arlene wasthinking about buying a franchise, she asked if Arlene wouldconsider buying hers. The price the woman quoted was $10,000 lessthan what the company currently was quoting. The second person toldArlene he simply did not give out information over the phone. Heseemed somewhat edgy about talking to her and continuallysidestepped Arlene’s requests for specific financial information.Finally, he told her, “Look, if you really want this information, Ithink you should talk to my attorney. If he says it’s okay to tellyou, I will.” He then gave Arlene the attorney’s number. Before,she could call the lawyer, Arlene left for lunch. When shereturned, one of the partners of her firm was standing beside herdesk. “Hey, Arlene, what are you doing calling this guy? He asked,holding up the telephone number of the franchisee’s attorney. “Areyou planning to sue someone? That’s his specialty, you know.”Arlene smiled. “As a matter of fact, I am. I’m thinking of suingyou guys for back wages.” The attorney laughed along with her andthen walked back into his office.
Questions
1. What is your appraisal of the situation? Does it look good orbad?
2. Would you recommend that Arlene buy the franchise from thewoman who has offered to sell? Why or why not?
3. What would you recommend Arlene do now? Be complete in youranswer.
250 words per question. Thank you
