Written and Sourced From Franchiseba.com
Sabrina Wall, CEO August 25, 2020
I was on the call with a franchise buyer the other day and he told me he was working with a franchise consultant already and that it had not been a good experience. He said the consultant seemed to be just pushing a lot of franchises at him and then pressuring him to talk to some of the franchise sales reps. He wanted to know why our franchise brokers would be different if he chose to work with us.
I shared the differences. Afterward, he told me he was releasing the first franchise consultant as he wanted to work with us. He mentioned that he thought the services we are providing and the methods that we are using should be the standard.
I agree with him which is why the Franchise Brokers Association has worked hard to make sure our franchise brokers are educated and knowledgeable about the franchises they introduce franchise buyers to.
I’m writing this blog to highlight some of those differences. I personally believe the differences are dramatic and that a franchise buyer should be wary in working with brokers who don’t perform the “FBA Way.”
Franchise Brokers are not created equally. It is an unregulated and often unstructured industry. The way many franchise brokers work is they are trained by their networks to not concern themselves with the Franchise Disclosure Document (“FDD”) or other critical elements of the franchise systems which they represent.
The problem with this approach is that the FDD is the legally required document which totally governs the franchise investigation and sale. It is required by law. Neither the franchise broker nor the franchisor can make any representations to a potential franchise buyer that is inconsistent with what is contained in the FDD. To not understand the FDD, frankly, is to not understand the franchise that is being investigated.
While the broker has no authority to approve, decline, sign agreements, collect payment, etc on behalf of the franchise system, the franchise broker is very much involved in the franchise award and sales process. The franchise broker does the introductions, the matching, they present the franchises to the candidate, they hold themselves out as an expert or professional consultant in franchising.
Reviewing the FDD
If the broker is not allowed, refuses to, or is not trained to review or understand the FDD, but at the same time is required to stay consistent with it, how can the broker do that? How can they actually abide by the rules if they are not allowed to see, understand or even look at the very document which defines the product they are promoting? If the broker doesn’t read the FDD, how can the broker accurately recommend any franchise to you? They don’t have a true picture of what the product “the franchise” is. The only thing the non-educated broker knows or see is the marketing and sales materials put together by the franchisor. And you should not rely on a sales piece alone in making such an important step as business ownership.
To distinguish themselves, many franchise brokers have been promoting themselves as “consultants” or worse, “experts.” We are not convinced that a broker who fails to understand the FDD and therefore, the franchise they are promoting is either a “consultant” or “expert.” You shouldn’t either.
The Individual Broker
What’s worse, there are influential members of the International Franchise Association who actually advocate for this “don’t look at what you’re selling” industry standard. Their rationale is the broker network (not the actual broker within the network) should somehow be the entity familiar with the FDD.
Unfortunately, this misses the point. You as the buyer don’t deal with the network. You deal with the individual broker. The broker network isn’t the one promoting the franchise to the prospective franchisee candidate. The broker network isn’t the one who is providing the franchise buyer support and the broker network isn’t the one you as a candidate would be even talking to. You have no interaction with the broker network. How do you know they are selecting the right franchises for you and qualifying franchises based on your unique, individual needs?
Think about it this way, would you go to a doctor who wasn’t allowed to look at a medical book, or a lawyer who wasn’t allowed to look at legal books or understand how the law works, or a mechanic who doesn’t understand how an engine works? Of course, not.
Understanding the FDD
We think it’s important to know more than just glossy sales materials. Good franchise brokers should know what to look for in the FDD. They should have a grasp and understanding of the impact of certain items in the disclosure. The disclosure, among other things, is a description of the franchise system’s track record and has an impact on the franchise buyer’s ability to be successful.
We don’t want to turn our head away and say we aren’t going to look at the disclosure because no one else in the industry is.
We are going to look at the disclosure and understand it because we believe that is the right thing to do. Franchise sales require a huge amount of professional care. It’s a large investment by you and it’s critical that you choose the best people to help you with it.
Franchise brokers should not be just thrusting franchises at franchise buyers. They should be giving support in the research and due diligence process. They should be teaching the buyer what the pros and cons are of the franchise. They should be helping the franchise buyer find good advisers, do proper due diligence, understand the franchise terms, and learn the franchise processes. They should be a valuable resource to the franchise buyer who helps provide that buyer with clear and truthful information. Franchise brokers have to move beyond the glossy hand-outs in order to do that.
Note: We use the term “Franchise Broker” because it is the legal term for our profession. Others in the industry use “Franchise Consultants” which they self-define. We choose to use the legal term as we feel it’s more appropriate and clear. Consultants typically charge for services. Franchise Brokers are paid by the Seller, not the Buyer. There is no charge to the Buyer for our Franchise Broker services.