Uno, Dos, Tres, Quatro ...

For my next round of postings, throughout the balance of the winter and into the spring, I want to focus on two very different topics, and feature each several times. As in the past, we may be interrupted by pressing events or issues, but I’ll try to keep the focus on:
1. bankruptcy; and
2. the things one needs to know before either franchising one’s business or becoming a franchisee of someone else’s business.

Believe it or not, there are some areas of overlap between these, and we’re likely to touch on them. As the columns develop, I plan to call in some expert testimony from a few sources -- financial advisors who specialize in distressed situations, attorneys who guide clients through bankruptcies, and both legal and strategic advisors for franchise operations. I don’t want the columns to necessarily become “how-tos”; however, there will be a bit of step-by-step information as well as an overview of each subject. I suspect that some of the topics will attract sufficient interest that some of my advisor friends may receive inquiries from some readers. I hope that will be the case, in fact, as it’ll provide yet another example of the networking and information flow possibilities which FohBoh provides.

Let me also take a moment to welcome the first of what will be a flood of new FohBoh members, now that FohBoh and the California Restaurant Association have teamed up. I hope you’ll enjoy and learn from the wide range of postings and discussions on this site.

Back to the topics at hand: a couple of recent press releases and a very recent article may serve to convey the potential “blessing” of bankruptcy. I’ll cite these here as preparation for a more detailed discussion to come.

Boston, MA (January 20, 2010) - Uno Restaurant Holdings Corporation ("Uno" or the "Company") announced today a restructuring which will recapitalize the Company and eliminate substantial debt through the conversion of $142 million of senior notes (the "Notes") into a controlling equity stake. The recapitalization will give Uno the resources to invest in its growth opportunities. (Source -- the company’s web site. This is the first paragraph of a much longer announcement and discussion.)

SEATTLE -- Taco Del Mar Franchising Corp. today announced that it is voluntarily restructuring its business under the protection of Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court in Seattle. The company is expecting to continue all business operations during the restructuring without interruption. The restructuring will provide the company a chance to restructure debts and become financially viable again while reorganizing to better position the company for growth in the current economic climate. (Source -- company press release posted January 26 on http://www.perishablenews.com/. Once again, this is the first paragraph of a much longer announcement and discussion.)

Let’s just acknowledge from the outset that bankruptcy is not fun. With a few strange exceptions, people don’t enter the process frivolously. That having been said, there are real benefits in certain circumstances, and there are issues which can seemingly NOT be addressed in any other way, and there is value to the process when it’s necessary.

A recent column on the subject in The Economist (Schumpeter: Making a success of failure; America's enlightened treatment of bankrupt firms remains a model to the world, Jan 7th 2010 | From The Economist print edition) observed that “America’s enlightened attitude to corporate bankruptcy is designed to put economic resources back to productive use as quickly as possible. This means distinguishing between potentially viable companies and terminally ill ones... It also means putting pressure on the courts to deal with bankruptcy as quickly as possible... It also means treating bankrupts relatively leniently, not as sinners to be flagellated but rather as unfortunates who should be given a second chance.”

Even with this rather glowing observation, bankruptcy also entails very real risks, and should never be pursued lightly or without seasoned counsel and financial advisors. It’s that sort of “on the one hand; on the other” that I hope to demystify a bit in the coming weeks.

By the way, you’ll note that both of the bankruptcy filings I cited involved franchise concepts. Neither involved the franchisees, although it’s possible there’ll be fallout which affects them. That’s a part of what we’ll be discussing about franchising in the coming weeks. So ... Please stay tuned, and let me know if you have a particular angle on these subjects you’d like included or pursued.