Joel Libava
If you’re searching for the right franchise to own, and you’re thinking about working with franchise business brokers to find one, you need to read this.
That’s because some of the brands that brokers may “match” you to may not be the best brands for you…or anyone to invest in. And they may even know it.
I’ll explain.
What Do Franchise Business Brokers Do?
Before I share a recent situation about a less than stellar brand a few franchise business brokers chose to represent, it’s important to know what a franchise broker does.
In a nutshell, a franchise broker, also known as a franchise consultant or franchise coach, is someone who works for a limited number of franchise brands to help them find qualified franchise owners.
When brokers do find someone who qualifies, they make an introduction, and if the person they refer buys a franchise, the franchise business broker receives a portion* of the upfront Franchise Fee.
*Normally 40-50% of the Franchise Fee.
For instance, if you’re working with a franchise business broker who matches you to a franchise that charges a $40,000 Franchise Fee, he’ll make a cool $20,000 if you end up purchasing the franchise.
Note: Franchise brokers won’t contract with the cheaper franchise opportunities, as the fees wouldn’t be high enough for them to peddle them to you. It’s better to find lower-cost franchises on your own.
Last but not least, if you do decide to work with a franchise broker, you won’t pay a dime for their services, as they’re paid by the franchisors.
Now that you know what franchise business brokers do, let’s dig into a situation that recently happened. A situation you need to know about.
Bagels
I’ve never met anyone who doesn’t like an oven-fresh, perfectly formed bagel.
That’s probably why Joseph Smith, the founder of NYC Bagel and Sandwich Shop, started his business. And according to his website, what a business it is!
NYC Bagel and Sandwich Shop, the #1 bagel franchise in the country could be the opportunity you have been looking for! At NYC Bagel and Sandwich Shop, we take great pride in our food and our exceptional franchise opportunity. We strive to provide our franchisees with the best tools and knowledge to run a successful local business, and we encourage owners to learn the skills that will allow them to own multiple units.”
Sounds great!
Until you click the link to get franchise information.
That’s right. The franchising portion of the NYC Bagel website is shut down. But why?
Because of a “situation” the company has found themselves in. And an ugly one it is!
A Bagel Franchise With A Crazy-High Failure Rate
The backstory.
My friend, Sean Kelly, who reports on the sleazier side of franchising, has been writing about the NY Bagel Café franchise opportunity for almost a decade.
From Sean’s Unhappy Franchisee website:
The NY Bagel Café franchise opportunity is marketed and sold by President Joseph Smith (aka Joe Smith) and franchise salesman Dennis Mason (aka Ken Mason, aka Keith Samuels, aka Denis Mason, aka Brian Scofield). Prospective franchisees should be aware that not only does the franchise have an extraordinarily high failure rate, Joe Smith and Dennis Mason have had more than numerous franchise lawsuits and many franchise complaints against them.”
Fantastic. I’d like to invest in 3 units please. Kidding.
But what does this bagel franchise “opportunity” have to do with franchise business brokers?
And why should this matter to you-especially if you’re not looking at buying a NY Bagel Café*?
*I’m not sure why the name was changed to Café. I’m sure Sean knows.
Let’s continue.
Franchise Business Brokers And The Brands They Represent
When you reach out to a franchise business broker (or they find you) part of their sales pitch usually includes something like this:
“We work with 200 different franchise brands. They run the gamut from established brand names you’re probably familiar with, to newer, up and coming franchises.”
Fine. But how much do these brokers know about the brands they represent?
Answer: in most cases a lot.
To be more specific, the brokers know the features and benefits of the franchise opportunities they represent. But how deep does their knowledge go?
Do Franchise Business Brokers Do Background Checks On The Franchisors They Represent?
You would think franchise business brokers would only work with franchise brands that have lots of happy, money-making franchisees. But they don’t.
That’s because individual brokers don’t generally do background research on the franchises they represent, themselves. Instead, they rely on the folks running the franchise brokerage “Associations” they’re part of to do it.
That said, I don’t know if every franchise brokerage association (or franchise organization) scrutinizes every franchisor they have sales contracts with.
Note: years ago, when I was a franchise broker, the group I was with did give the once-over to every franchisor we represented. But the process wasn’t perfect.
In fact, several franchise brands ended up having big problems. And when word got around about these franchisors, I immediately stopped presenting those franchise opportunities to my candidates. Did the other 50 brokers in our group do the same? I have no idea.
Franchise Buying Tip:
If you end up working with a franchise business broker (who may call herself a franchise consultant or franchise coach), find out ahead of time if the franchise opportunities she’s going to present to you have been scrutinized, and if so, how.
In addition, if a franchise business broker tells you that the franchises she represents are “pre-screened,” ask her how their pre-screening process works.
The Word On The Street…
Today’s information highway is vast.
Furthermore, if you’re interested in a specific topic, and you want to stay up on any new information that comes out about said topic, all you need to do is set up a Google Alert.
With that in mind, any franchise business broker worth his salt has several Google Alerts set up.
For instance, if there was new information online about a franchise gone bad, most of the franchising brokers and others in the franchise industry would know (in a perfect world).
With that being said, one would think a broker would know about it, and furthermore, she would not present the franchise opportunity to a candidate (you). Right?
And that’s what this post is all about.
Keep reading to learn about a bagel franchise gone bad, and the franchise brokerage groups representing it that didn’t seem to do right thing.
Did Franchise Brokers Know About The Situation At NY Bagel Café?
The situation?
In 2013, Sean Kelly wrote the following:
NY BAGEL CAFÉ & DELI Franchise Complaints include unlawful and fraudulent franchise sales representations, a misleading, fraudulent, and incomplete Franchise Disclosure Document, and false and deceptive oral and written communications designed to trick prospective franchisees to buy a doomed, non-viable franchise.”
Doomed?
Then, in 2015, Sean wrote this about the NY Bagel Café getting thrown off a major franchise opportunity portal:
The NY Bagel Café & Deli franchise advertisements and associated broker accounts were also in violation of the franchise portals’ terms of service. On April 8, 2015, BizBuySell deleted 20 NY Bagel Café ads and a broker account attributed to a “Vincent Smiff, FoodBrokerInc.” The phone number for Vincent Smiff was actually registered to NY Bagel CEO Joe Smith.
It gets worse.
That’s because in 2017, the NY Bagel Café, Joe Smith and Dennis Mason aka Keith Samuels, aka Brian Scofield were found guilty of violating Virginia franchise laws and deceiving three Virginia consumers. They were ordered to repay the franchise fees to three victims, plus fines and court costs in excess of $700,000.
Whoa!
Here’s The Part About The Franchise Business Brokers
Asked To Leave A Franchise Expo
After the owners of NY Bagel Café got thrown out of the International Franchise Expo in 2019, they tried to get on board with several franchise business brokerages.
Wait. They were told to pack up their booth and vacate the premises?
Yep. Anyway…
He decided to approach the IFPG franchising brokerage, and soon after that, the IFPG decided to represent* the bogus bagel franchise.
*The IFPG eventually tossed them out.
In addition, FranServe (another franchising brokerage) signed on with NY Bagel Café.
And then, according to Sean, FranServe said they threw the franchisor out, but wait…it turned out that their brokers were continuing to present NY Bagel Café to their franchise candidates. Proof. A couple other broker groups signed them on too.
Again, what did these franchise business brokers know, and when did they know it?
Are Brokers Being More Careful Now?
If you’ve been following The Franchise King Blog for any length of time, get my VIP Franchise Newsletter, or see the things I put out on my @FranchiseKing Twitter account, you know I love franchising.
So why would I point out some of the negative things that happen in my industry?
Because it’s the right thing to do.
And it’s part of how I protect would-be franchise business owners from losing their money on lousy franchise opportunities.
Finally, Sean has a message for franchise business brokers, and I feel the same way.
“Franchise brokers, lenders, & promoters should decide now which stories they want to be their legacy. One day, when your commissions are long spent, your names and brands will still be associated with the worst you’ve promoted.”
Thoughts?
