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Thread: Closing down a business

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    Exclamation Closing down a business

    My husband and I have been in business for four years in a franchised restaurant. The lease agreement and franchise agreement were both based on Five year terms which would mean that both come to an end by the end of the year should we not renew. The first year of business was phenomenal and exceeded all expectations - ours, the franchisee and the finance institution that granted us the loan. Thank goodness we saved the excess money as subsequent years were tougher with rising food prices, petrol increases, wage increases, insane electricity increases etc. As with all new shopping centres, there is a lot of excitement and interest which brings in feet and sales. A huge new centre opened a kilometre away and the situation started turning. We saw less feet, more shops closed around us and sales dropped. In spite of numerous requests to the landlords to come to the party and talk about how we can improve things, our landlords signed a lease with a direct competitor to trade right next door to us and exacerbated the demise of our restaurant. We have manged to keep things very tight and until this point have been able to pay all the bills, however the last two months have become more tough where we find ourselves owing the landlord and the franchise money. This is not going to get easier and I fear that if we continue trading we may find ourselves owing way more than if we opted out at this point and kept the damage to a minimum. What are the implications with the landlord and the franchisor should we terminate our contracts prematurely? We are aware that staff will need retrenchment packages and leave payouts, and will honour that first and foremost. Your comments and advice would be greatly appreciated.

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    Platinum Member SilverNodashi's Avatar
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    All I can say is, good luck.... this is definitely not a nice situation to be in.
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    Diamond Member Justloadit's Avatar
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    It is time to pull out the agreements and have a good read and see what you actually signed, especially under termination clauses. This is going to be scary - one does not realise what we sign in the emotional moment of starting a new business.

    Rental agreement is probably pay up till the end of lease. Make sure that there is no automatic renewal, and follow the procedure in ending the lease.

    As far as the franchise is concerned, you need to pull out your agreement, and look at the breach clauses.
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    Gold Member Singhms's Avatar
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    To add to Justloadit, check if you have signed any personal surety for the lease or franchise agreements!!!!
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    Site Caretaker Dave A's Avatar
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    You really need to do the maths to work out which is the better course. Which comes down to really determining your early exit costs vs where you might be at the end of the contracts.

    Some idle thoughts on the decline:
    How much marketing have you done for your restaurant recently?
    Is the restaurant looking a little shop-worn and needs a damn good clean (or even paint) to look like new again?
    Are the staff keen and enthusiastic?
    Is the management keen and enthusiatic?

    It's easy to slide over a period of time. With the finish line in sight, what are the chances of pushing for a strong finish rather than quietly fading away?
    The trouble with opportunity is it normally comes dressed up as work.

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    Gold Member Singhms's Avatar
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    Something else I taught off more for people looking to get into a business weather new or existing. Not specifically for this scenario.

    There is a reason why everyone says research research research. I am not sure when this new mall opened in relation to your store opening. However as a heads up for other people. It is extremely important to check what the latest developments in your specific area is as like in this instance it could affect you negatively in the long run!!!

    As another example, 3 years ago I was interested in purchasing a service\petrol station in the Pretoria region. 1 of my most important research items for future developments was what would the effects of the Gautrain be on the station I was interested in!!! More vehicles using the station vs less vehicle using the station vs no change at all? As the profits shown at that point could of changed drastically once the Gautrain came into operation!!!
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    Diamond Member Vanash Naick's Avatar
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    In short they can only sue you for breach of contract in a civil court of law. They will have to sue out summons and a particulars of claim. The real question is, based on how well you know them and the loss of earnings they would incur by the breach is simply this: Will they sue out summons for breach of contract considering that even if they get judgment they won't be able to collect on that judgment taking into consideration that they will have to sue you in your business capacity as opposed to your indivudual capacity. I see it as this, you not breaching the contract for any culpable, malicious, dishonest or fraudulent reasons. You've now reached a point where the financial situation is simply beyond your control. You also exercising whatever social responsibility, ethical and legal duties you have such as ensuring that your staff are informed and paying them their just retrenchment package.
    Look this is not a pleasant thing for all parties concerned. I personaly think that given the situation the landlord and the fanchisor will write off the amounts owed as 'bad debt unrecoverable.' I sincerely wish you everything of the best and as Soft Dux Rudi correctly put it, it's not a nice situation to be in.
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    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by Vanash Naick View Post
    Will they sue out summons for breach of contract considering that even if they get judgment they won't be able to collect on that judgment taking into consideration that they will have to sue you in your business capacity as opposed to your indivudual capacity.
    Depends if there are personal sureties, which unfortunately is highly likely.
    The trouble with opportunity is it normally comes dressed up as work.

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    Diamond Member Vanash Naick's Avatar
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    Yes, Dave is 100% exactly right!On matters such as these, I can’t help but see the human aspect of it and the people behind such matters. In criminal proceedings, no matter how heinous the charges, an accused is entitled to ask the State for mercy. Where such mercy is granted is quite another thing. In this matter, I can’t help but see a couple who gave their best shot to life, they paid their taxes, they law abiding citizens and they engage in ethical practices towards their employees. Life throws a curve ball at them. I can’t help but think that the creditors should also have mercy given the individual circumstances of this case. It’s noteworthy that a judgement does not take the current financial circumstances of the defendant into consideration(I’m not referring to the financial inquiry that takes place in chambers). The judgement itself has this notion, the defendant may be in a precarious financial position now but may also win the lotto in 10 years in which case the judgement creditor can still collect on the judgement. I sincerely wish you guys everything of the best going forward!
    “The philosophers have only interpreted the world, in various ways. The point, however, is to change it.” Karl Marx
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    Hello I Ntine, I think you have to see your agreement paper and check if you have signed any personal surety for the lease and agreement.

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