Cleaning service shutdown devastates franchisees - Albuquerque Journal

Cleaning service shutdown devastates franchisees

Copyright © 2021 Albuquerque Journal

Maria de los Angeles Franco and her husband, Samuel, were nearly ruined financially when the commercial cleaning service Jan-Pro of New Mexico suddenly shut down in June of last year.

Jan-Pro is a franchise-based business that sold and managed franchise rights for self-motivated individuals such as Maria and her husband to own and operate their own cleaning business under the Jan-Pro brand. The couple paid more than $12,000 since 2016 to Jan-Pro of New Mexico, owned and operated by Bob and Sophia Guido of Rio Rancho, to obtain the rights to provide cleaning services to seven commercial customers the company assigned to them.

Under the franchise agreement, the Guidos’ company managed the administration of Maria and Samuel’s customer accounts for them, billing the clients and collecting the customers’ monthly payments. The company would then charge Maria and Samuel for those administrative services, plus an ongoing monthly royalty payment for operating under the Jan-Pro brand.

Former Jan-Pro of New Mexico franchisee Blanca Lopez, left, and her employee, Marta Gonzalez, clean a house in the North Valley. Lopez now services customers under her own company brand, Blanca’s Busy Bees. Adolphe Pierre-Louis/Journal

After deducting those fees, plus taxes and insurance costs, Jan-Pro of New Mexico would cut a monthly check to Maria and Samuel for their cleaning services, which amounted to about $5,600 in net monthly income earned by the couple for their seven assigned customers.

But when the Guidos unexpectedly closed the doors without warning in June 2020, Maria and her husband were left to fend for themselves to keep their cleaning business alive. They scrambled to retain their customers, offering to continue cleaning the clients’ offices independent of the Jan-Pro brand. But overnight, four of their seven customers — which Maria and Samuel had paid $10,000 to the Guidos to obtain — canceled their contracts.

They weren’t the only ones affected. When the Guidos shut down their operation in the midst of the pandemic, it thrust a network of local franchise operators — most of them Spanish-speaking immigrants like Maria and Samuel — into a prolonged crisis that many are still grappling with today.

Blanca Lopez, who worked as a Jan-Pro franchisee since 2017, said no one got any advance notice that the Guidos were shutting down.

“They never told me or anybody else they were shutting down, in an email or otherwise,” Lopez said in Spanish. “… I was told on a Friday at 6 p.m. that Jan-Pro was closing its doors, and we could continue to work independently with our customers.”

Lopez scrambled over the next two weeks to try to retain her customers independently of Jan-Pro.

“I managed to keep almost all my customers, but many other franchisees came out really bad in this situation,” she said.

The Guidos had owned and managed Jan-Pro cleaning services since 2015 in central New Mexico as a master regional franchise operator licensed to do business here by Jan-Pro Franchising International Inc. — one of the nation’s largest commercial-cleaning franchise businesses. The corporation contracts with regional operators like the Guidos, who obtain licenses from the Georgia-based company to provide Jan-Pro cleaning services in local markets. The regional operators then sell rights to sub-franchisees who pay thousands of dollars to obtain customer accounts from the master operators to offer services under the Jan-Pro brand.

The local franchisees interviewed by the Journal say the Guidos — who owned 100% of the stock in Jan-Pro of New Mexico — never explained why they closed the company, and the couple declined to speak with the Journal.

“We are not willing to discuss the closure, or our plans moving forward,” Bob Guido said in an email.

Executives at the Georgia-based headquarters of Jan-Pro International did not respond to Journal phone and email inquiries.

But the Journal interviewed nearly a dozen former local Jan-Pro franchisees, who say the company failed to pay them tens of thousands of dollars for work they did under the Jan-Pro brand. Most have managed to continue working independently with some of the customers they previously served under Jan-Pro. But most also described significant economic hardship caused by the Jan-Pro shutdown, lingering confusion about why the Guidos closed the business, and uncertainty about whether any legal options are available to recover money they say is due them.

In some cases, the Jan-Pro closure left franchisees nearly ruined financially.

In Maria’s and Samuel’s case, the abrupt shutdown sliced the couple’s monthly net income to about $1,200 for the three remaining customers that agreed to retain their services — barely one-fifth the level of net pay the couple had earned before Jan-Pro of New Mexico closed.

Adding to their hardship, the couple said Jan-Pro of New Mexico never paid them the $5,600 due for their cleaning services in June 2020, even though nearly all of Maria’s and Samuel’s clients — including the four that canceled their contracts — said they paid their June bills in full to the Guidos’ company.

Samuel subsequently took a job at a furniture store to meet monthly expenses for the family, which includes a daughter, age 7. Maria now continues to clean the offices of the couple’s three remaining clients on her own.

“My husband and I worked hard to build and manage our cleaning business,” Maria told the Journal in Spanish. “We worked together from 6 or 7 p.m. every night to 7 a.m. the next morning, and then from one day to the next they closed down without ever telling us why and without paying us for June. We have a lot of problems now just getting by, and we still have yet to hear anything from the Guidos.”

Former Jan-Pro of New Mexico franchisee Josh Powers cleans an office building in Rio Rancho for one of the customers he managed to retain as a fully independent operator after Jan-Pro closed in June 2020. Adolphe Pierre-Louis/Journal

The other Jan-Pro franchisees interviewed by the Journal said they faced similar situations. They all told the same story — that the Guidos and Jan-Pro of New Mexico never forewarned anyone about the shutdown, never explained why afterward, and never paid any of the franchisees for their work in June 2020, even though nearly all customers told the franchisees that they had paid their bills in full to the company.

Many of the franchisees also lost multiple customers after having paid thousands of dollars for the rights to serve those clients under the Jan-Pro brand.

And Jan-Pro’s closure may have similarly affected scores of other franchisees in central New Mexico, where the Guidos reported in 2017 that they were managing at least 80 franchised operations.

The lack of response from the Guidos and from Jan-Pro International corporate executives leaves many unanswered questions about the alleged debts owed to franchisees and who may be liable for those losses.

Background

Jan-Pro International, which launched in the 1990s, currently counts more than 10,000 independent franchisee businesses operating in the U.S. and seven other countries.

Master franchisers like the Guidos manage their local operations independently of the corporation, earning their money by selling rights to sub-franchisees to serve assigned customers under the Jan-Pro brand. They also charge a 10% royalty fee on all cleaning contracts, plus a 5% fee for administrative services, according to interviews and documents reviewed by the Journal.

Ashley Pepe holds her son Theo Pepe in their home in Rio Rancho. Pepe was pregnant with Theo while she was cleaning businesses as a Jan-Pro of New Mexico franchisee last summer. Pepe said she was never paid for that work.(Mike Sandoval/for the Journal)

That includes billing customers for the franchisees and then deducting all taxes, workers’ compensation, insurance costs, charges for cleaning equipment and products, and any other related costs incurred each month. The master franchiser then cuts a monthly net paycheck to the franchisees.

Jan-Pro of New Mexico originally launched as a regional operator in 2007 under former owner Will Parker, who sold the business to the Guidos in 2015. At that time, the company reported $2.2 million in gross revenue.

Sophia Guido told Albuquerque Business First in 2017 that after two years of running the business, the Guidos had expanded their local franchise network by 60% to more than 80 sub-franchisees, up from 50 under Parker. That growth came largely from recruiting Spanish-speaking immigrants, according to Business First’s interview with Sophia Guido, a U.S. citizen of Cuban origin.

Uncommon structure

Franchise operations that work through master regional franchisers like Jan-Pro are not common in the industry, said longtime franchise consultant Joel Libava, owner of The Franchise King in Ohio, which advises individuals on establishing and operating franchises.

Only about 5% to 10% of all franchises in the U.S. are run through master operators, which generally reap much more benefits from the business arrangement than the sub-franchisees.

Rather, most U.S. franchises are fully independent operators who completely run all aspects of their own businesses once they obtain their license from a corporate chain, Libava said.

But the master operator model is often attractive to low-wealth individuals because it’s less expensive to buy a franchise. And for people with additional issues — such as limited business skills or language difficulties among Spanish-speaking immigrants — it can be easier to operate with a regional master franchiser providing administrative services.

The arrangement, however, comes with costs.

“The master franchise holder is the one that really makes money,” Libava said. “If the sub-franchisees pay significant fees to obtain lots of accounts, they can probably make a decent living. But it’s a company working under another company, and generally, from what I can tell, they’re just making a living, nothing more.”

That was generally the case among Jan-Pro franchisees interviewed by the Journal, who said they paid an initial $5,000 fee, usually in installments at 10% interest. That covered the costs for obtaining their first customers, plus starting equipment and products needed to launch their businesses.

Over time, most franchisees purchased more customer accounts from Jan-Pro of New Mexico to build their operations. Each new account cost four times the value of a customer’s monthly contract, meaning, for example, the franchisee would pay $2,000 to the Guidos for a client paying $500 a month for cleaning services.

Huge losses from shutdown

Orlando Mayorga, who started with Jan-Pro in 2015, paid about $36,000 to obtain 12 customers by June 2020, generating about $8,200 per month in net income.

When Jan-Pro of New Mexico closed, Mayorga lost four of his customers after having previously paid $12,000 to obtain those clients from the Guidos.

Mayorga said he never received the $8,200 in net pay due for his cleaning services in June 2020. But all the clients that retained his independent services after the Jan-Pro shutdown told him they had paid the company for that month.

“They showed me the invoices that the Guidos emailed them for June,” Mayorga said in Spanish. “They all paid.”

Sandy Dodson, community ambassador for Premier Cinemas in Rio Rancho, confirmed payment to Jan-Pro New Mexico for Mayorga’s cleaning services. With 14 auditoriums, Premier Cinemas is one of Mayorga’s biggest accounts, and the company’s corporate offices in Texas managed all monthly bills sent by the Guidos.

“I know we paid that (June) bill, because nothing came to me from the corporate office saying we didn’t,” Dodson told the Journal.

Another franchisee, Josh Powers, said all his customers also confirmed payment for June 2020. In fact, he sent one invoice to the Journal showing a client’s payment. But Powers said he never received his normal $2,800 net paycheck for that month.

“I spoke to like a half-dozen other franchisees and everyone got stiffed for their June paychecks,” Powers said. “It’s a lot of money.”

Taken together, the unpaid services for June 2020 collectively total nearly $38,000 just for the franchisees interviewed by the Journal, with each one’s monthly net pay ranging from a low of $1,700 to a high of $8,200. It’s unknown how many franchisees were operating under Jan-Pro of New Mexico when the Guidos closed the company. But based on Sophia Guido’s confirmation of more than 80 as of 2017, lack of payment to franchisees last year may well surpass $100,000, and possibly more.

In fact, apart from lack of payment in June 2020, total losses for franchisees are much higher, because most franchisees lost one or more clients that they paid thousands of dollars to obtain from Jan-Pro. Add to that the loss of monthly income from those departed clients over the past year, and the damage is substantial, Powers said.

“The Guidos never told anyone they were closing,” Powers said. “They just dropped everyone from one day to the next. Everyone was blindsided.”

Gains and setbacks

In some respects, many franchisees say they are better off as independent operators without the Guidos’ administrative oversight and the royalty and service charges that come with it.

Indeed, they can now freely recruit new clients for their own businesses without paying licensing fees to Jan-Pro of New Mexico, which was prohibited under the regional master franchising system.

That’s a welcome change for many, such as longtime franchisee Ashley Pepe, who joined Jan-Pro of New Mexico in 2008 to secure a steady income while working flexible hours as her own boss.

But her newfound independence came at a huge cost. Now a mother of four, Pepe was pregnant when the Guidos closed the company, and like all franchisees, she worked through the pandemic to sustain her family, potentially exposing herself and her children to the coronavirus.

Then, when the company failed to pay the $3,225 in net income owed her for June 2020, Pepe worried she would not be able to pay her mortgage and car payment. And Pepe’s mother, also a Jan-Pro franchisee, struggled to pay for repairs to keep her car running last year because she as well never received her net pay in June 2020.

“To me, that money represents my time and my body serving my customers, hours and hours of my life cleaning away from my family in a pandemic,” Pepe told the Journal.

Maria de los Angeles Franco said her family is still struggling to get by, more than a year after Jan-Pro of New Mexico shut down.

“We have a lot of economic problems now,” Angeles Franco said. “We’re trying hard to move on. But we want to get paid for the work we did, and we’ve never gotten a response from Jan-Pro.”

An earlier version of this story misidentified former Jan-Pro of New Mexico franchisee Blanca Lopez in a photo. The image’s caption has been updated.


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