Joel Libava
There are several things today’s franchise brokers would like to keep under wraps.
The 3 things franchise brokers would prefer to keep under wraps that I’ve decided to share with you aren’t bad things. Not at all. They’re just things that you-the prospective franchise business owner should know.
Isn’t that why you’re here?
Don’t you want to have as much information on franchising as possible?
Franchise Broker Information I Shared So Far
In Part 1 of this 3-Part franchise blog series on franchise brokers-and some of the things they prefer to keep under wraps, you learned something really interesting about franchise brokers and the franchisors that use them.
This:
Most franchise brokers work with the same franchisors, and most franchisors work with all of the same brokers.
So, what does that mean for you ? Why is it important for you to know?
It’s important for you to know so you won’t waste time working with two franchise brokers at the same time since they’re probably working with the same franchisors. It’s a waste of time, and can lead to serious confusion. It’s hard enough investigating two or three franchise opportunities at once, even if you’re doing it right.
A Note About Franchise Brokers
I read this a while ago. It was posted on a now-defunct franchise forum. It’s pretty harsh, but it’s true.
“It is important to point out that not all brokers practice their craft the same way, which highlights the fact that obfuscation is not an essential element of franchise sales. Each of the major broker networks, while disclosing that it is paid by the franchisor, in one form or another represents that it provides no-cost, beneficial services to prospective franchisees. On some of the web sites, though, a prospective franchisee is led to believe that the broker is its coach, adviser or consultant. Indeed, some brokers describe prospective franchisee as their clients, even though they are paid and are agents for the franchisor. An assertion that the prospective franchisee is the client when the broker is a paid agent of the franchisor is totally unsupportable. The conflict of interest and the unfairness to a potential franchisee are apparent.”
– Michael Seid, MSA Worldwide
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3 Things Franchise Brokers Would Prefer To Keep Under Wraps: #2
Who are you? Seriously.
When you work with a franchise broker, who are you?
The answer…
Wait. Let me do it this way, instead.
Who aren’t you?
The answer: The client.
When you work with a franchise broker, you are not their client.
The franchisor is.
You only “feel” like you’re the client when you’re working with a franchise broker.
Just Follow The Money Trail
Most franchise brokers (who sometimes call themselves consultants) offer their services for free. That’s because they’re paid by the franchisors. It’s really easy to follow the money trail. Unless…
Some franchise brokers charge a fee. They call it a consulting fee or a commitment fee. It can range from $50 to a few hundred dollars. Some brokers feel that by charging a fee they’ll be able to get only “serious” prospects. It’s up for debate, but since I’m not a broker anymore, I’ll leave it to the brokerage community to do.
The question:
If you work with a franchise broker who charges a small upfront fee, does that change things? Are you the client since you’re paying a fee?
No.
The franchisor is the client because they’re paying the big fee.
The franchisor is the client because they have a signed sales agreement with the broker. A signed contract.
Does it matter?
Yes. Of course it matters.
Whenever money changes hands because of something you’ve said yes to, a sale has been made. In this case, there are two sellers.
The franchisor and the franchise broker.
They both make money when you send in your check for the upfront franchise fee and sign the franchise contract.
It’s not a bad thing. But, it is a “thing.”
Full Franchise Broker Disclosure
I’m not sure you know this about me, but I’m trying to change the franchise world.
Part of the change that needs to take place has to do with disclosure. Franchise buyer’s need to know who’s who in the franchise broker-franchise buyer relationship.
My suggestion:
Franchise brokers need to disclose their relationship with you-the prospective franchise owner.
In today’s day and age-the age of transparency in business, it’s the right thing to do. And it’s important for you to know who’s who.
In Part-3 of this series on the 3 Things Franchise Brokers Would Prefer To Keep Under Wraps, I’ll unwrap something else for you.
About the Author
Joel Libava is The Franchise King® — an independent franchise advisor with 25+ years in the industry, two published books on franchising, and his writing has been featured in The New York Times, Forbes, CNBC, Entrepreneur® Magazine and others. In addition, he wrote exclusively for the U.S. Small Business Administration blog for eight years. He doesn't sell franchises. Instead, Joel helps you figure out if franchise ownership is actually right for you — and if it is, teaches you his powerful, proven-to-work franchise research techniques, so you can make a smart, informed decision on a franchise to own and be your own boss.
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