Is Your Guide A Franchise Broker Or Franchise Consultant?
There are literally hundreds, if not thousands of franchise brokers that label themselves ‘franchise consultants.’ Prospective entrepreneurs who are interested in buying a franchise should educate themselves on this subject.
There’s an enormous difference between the traditional franchise consultant and a franchise broker. Somewhere in the 1990’s franchise representatives/brokers/sales people began calling themselves consultants. The reason for the change is quite obvious. The term ‘consultant’ sounds more attractive than broker. The term ‘consultant’ also implies something different than broker, and difference confuses franchise buyers. But, that is arguably intentional. You be the judge.
How To Know The Difference Between A Franchise Broker & A Franchise Consultant: Just Follow The Money
The franchise broker (by any other name) represents franchisors, not buyers, and is paid a fee (or commission) if a franchise buyer chooses one of the franchises with whom they have contracted for their services. So buyers must ask themselves: ‘Who’s the client, me or the franchisor?’ The answer is quite simple. The client is the entity paying the broker’s fee – the franchisor. No matter how one cares to define the relationship, if the broker is paid by the franchisor, the franchisor is the client. It’s that simple.
A franchise consultant on the other hand is a ‘fee for service’ provider. A franchise consultant charges buyers a fee to advise and protect them and their best interests. The most important aspect of this protection is serious franchise due diligence that breaks down and analyzes a franchise offering. You will not find a commissioned broker breaking down a franchise they represent and pointing out its flaws. They’re paid to sell a concept, not critique it.
How To Identify Franchise Brokers
The easiest way to identify a franchise broker is by the following ad: ‘FREE FRANCHISE CONSULTING.’ It’s the calling card for franchise brokers. Nothing is free. As said above, just follow the money. How are they paid’?
Is There A Benefit To Franchise Brokerage?
Yes and no. The broker will introduce prospects to franchises they might otherwise not see. But there are at least three negatives. One, there will be a barrage of introductions that can create more confusion than clarity. Two, the broker will only make introductions to franchises with whom they have a fee arrangement. And three, there will be no due diligence performed. Prospective buyers will be presented with blue sky and happiness as opposed to the investigative steps that should be part of buying a franchise.
What’s The Bottom Line?
Buying a franchise, when done right, is a complicated and tricky proposition. Franchising is expensive and making a mistake is costly. That means not only the potential for losing a large amount of money, but losing time and finding misery if it’s a bad investment. Franchise failure rates are high, much higher than people are led to believe. A bad franchise purchase can ruin your life. So, buyers must ask themselves: Do I want free sales input or do I want protective services? Simply put: BUYER BEWARE.