The Pros & Cons Of Franchise Consultants.
Franchising is a way to grow a business that lets a company owner sell their knowledge, experience, and concept to dedicated individuals who put up the money to open and operate new franchise locations.
Franchises are known to the public under a well-promoted name like McDonald’s®, not the names of the individual franchise owners. As a result, the general public may not realize that many businesses with multiple locations are in fact franchises with each location being managed by a franchise owner. And, while the public may not be aware of how large franchising is in the economy, statistics tell the story.
- Each year more than $1 trillion in goods and services are sold through franchises in the United States.
- 35% of all retail goods and services are sold through franchises.
- There are almost 1,000,000 individual franchise outlets in this country.
- Each working day a new franchise opens every 5 minutes.
- Over 300 different types of industries and businesses are franchising
Such factors as, the movement from a manufacturing to a service economy, technological advances, and women becoming a large part of the work force, have provided expanding opportunities for people to own their own businesses. The growth of franchising has accelerated the desire for private business ownership.
The Federal Trade Commission (FTC)
The Federal Trade Commission defines “franchising” as a business relationship in which an individual owner:
- Operates Under A Brand Name (such as Planet Fitness® or Century 21® or Dunkin’®);
- Receives Significant Control Or Assistance (from the parent company); and,
- Pays A Fee To The Parent Company ($500 or more within the first six months of operation).
If a business arrangement includes these 3 elements, it’s a franchise and must comply with the rules of the Federal Trade Commission in the selling of franchises. The Federal Trade Commission requires that all companies that sell franchises give a prospective buyer a disclosure document.
The Franchise Disclosure Document is a consumer protection type of document which provides a prospective franchise buyer with certain background information, such as, their required investment, the support the franchise company will provide to them, contact information for franchise owners, and the financial statements of the franchising company.
The document also contains the contract (franchise agreement) that the franchisee signs agreeing to operate the franchise according to the franchise company’s standards, which helps to protect the company’s image and reputation, and helps to ensure quality operations.
The Disclosure Document is created by the franchise company itself, not by an independent outside agency. The Federal Trade Commission doesn’t review or approve the document. The Federal Trade Commission may possibly get involved if there’s a later dispute between the franchisor and the franchisee, but even then, the FTC’s involvement is not likely.
A prospective franchisee must receive this document at least 14 days before they sign up. The document must be filed and approved by regulators in certain states before a franchise company can offer a franchise for sale in the particular state.
TYPES OF CONSULTANTS IN FRANCHISING
IF YOU WANT TO BUY A FRANCHISE.
Should You Buy A Franchise?
People buy franchises to own a business, to become independent, to escape from the corporate world, to seek financial security, and to have an asset to pass on to future generations.
They’re buying a franchise company’s business concept, experience, brand, and support, which all adds up to a “feeling” that by buying the franchise, they should have a good chance of success.
What Are The Advantages Of Buying A Franchise?
- The Benefits Of Belonging To An Established Brand — A well run, respected brand should result in higher unit sales than a similar independent business.
- Help In Starting A Business — Some people buy a franchise because they’ve never run a business before and they want help in doing so.
- Lower Risk — Since a franchise should be a “duplicate” of an already successful business, it should have a good chance of success.
- Quicker Start-Up / Higher Sales / Higher Profits / Increased Equity — When a person buys a franchise, they’re getting start-up support and they’re buying the “learning curve”. As an alternative, if they were to start a similar independent business, it would take longer to achieve the sales volume associated with buying a franchise. The trial and error stages have already been done by the franchisor and as a result, profits and business equity should be built faster.
- Be One’s Own Boss — Franchising allows an individual to feel the pride and independence of owning their own business.
- Training — The training an individual receives in a franchise should help them avoid mistakes and generate more volume and profits.
- Support / Ongoing Assistance — Ongoing support should give a franchise owner quick access to help in solving problems and a feeling of “not being alone”.
- Collective Buying Power — Collective buying power should help reduce the costs of doing business.
- Regional / National Marketing — A chain of operating units can afford to generate far more exposure and advertising than a single unit independent, which should result in higher sales volume.
- Systems / Policies / Procedures Already Tested and Established — Tested and proven systems should save development time and help prevent mistakes.
- Mutual Destiny — The success of each franchise owner is in the best interest of the franchisor.
- Research and Development — The research and development performed by the franchisor, could save valuable time and money for the franchise owner.
What Are The Disadvantages Of Buying A Franchise?
- Loss Of Independence — An independent businessowner could change store layouts, equipment, services, menus, and so on rather quickly. A franchise owner has rules and regulations that govern their look and layout, services offered, who they must buy from, etc. Does this loss of control outweigh the benefits of belonging to a good franchise system? No.
- Payment Of Fees — While nobody wants to pay fees, a good portion of those fees goes to supporting the franchisees and building their sales volumes while reducing costs. A wise franchisee shouldn’t mind paying fees because the benefits that they receive in return should far outweigh the cost of the fees.
Should You Use A Franchise “Consultant” To Buy A Franchise?
What’s A Consultant?
A “consultant” is a person who gives advice and guidance based on years of knowledge, expertise, and experience. Management consulting is a $2 Billion industry in the U.S.
It usually takes many years to gather “knowledge” in a particular field. The same with “expertise”. “Experience” by definition implies working for years in a specialty.
Are People Who Sell Franchises “Consultants” or “Brokers”?
There are companies that charge inexperienced people large fees (tens of thousands of dollars), train them for a few weeks in selling franchises, and tell them that they can now call themselves “Franchise Consultants”.
Since a “consultant” is a person who has gathered knowledge and developed expertise over many years, these people are not really “consultants”, they’re “Franchise Brokers”. (The title “consultant” sounds a little more professional than “broker” which allows those training companies to charge tens of thousands of dollars.)
Ask yourself how long should it take to become an “expert” in any field. How many years? Don’t be fooled by the title “consultant”. Most of these people are brokers, and as in real estate, they’re in it to get a commission.
So, What Does A Franchise Broker Do?
A franchise broker acts as an intermediary between a franchising company and a potential franchise buyer, in a similar way that a real estate broker is an intermediary between a real estate seller and a real estate buyer.
A franchise broker should be able to give a prospective buyer background information on a franchising company and should be able to steer the franchise buyer to potential types of franchises based on their interests and the amount of capital that they have to invest.
A franchise broker is usually paid a commission of 40% to 60% of the Franchise Fee by the franchising company.
Okay… So… Should You Use A Franchise “Broker” To Buy A Franchise?
Do you know what kind of work you’d like to do? Do you know what kind of business you’d like to be in? Do you know how much you can afford to invest?
If you don’t know the answers to those questions (it’s ok if you don’t), you’re not ready to buy a franchise business and you could be susceptible to being pressured by a franchise broker into the wrong business for you.
Pros Of Using A Franchise Broker
- A franchise broker could save you some time in looking for franchising companies.
Cons Of Using A Franchise Broker
- There are several thousand franchise companies in the U.S. Franchise brokers typically represent a tiny percentage (1% or less?) of all franchising companies. (In comparison, a real estate broker can help a home buyer with virtually 100% of all the houses that are on the market. Would you ever use a real estate broker that could only show you 1% of the homes available?) If you only rely on a franchise broker, you could miss many companies that better match your interests and the amount of funds that you have to invest.
- A franchise broker may steer you to opportunities that aren’t suitable for you, and towards the franchise company that is paying them the highest commission.
- They may make promises to you or financial projections that aren’t true. They may exaggerate.
- They may have very little franchise experience in general, and very little experience with a particular franchise company. They may not be aware of concerns that you should have with a particular company.
- Worse, they may hide negatives that they know about a franchise company because they’re driven to get a commission.
You must be very selective in buying a franchise. You must know the pluses and minuses of each franchise company because you don’t want to be disillusioned 6 months after buying. You must get to know the people in the franchise company. Spend time with them. Like them. Trust them. Develop a relationship with them. You’re “buying” a years / decades long relationship with the franchise company and its people — not the broker.
IF YOU WANT TO START FRANCHISING YOUR BUSINESS.
Should You Franchise Your Business?
If you own a small business, franchising is a way of quickly growing by “acquiring” growth capital and dedicated local management from the franchise buyer.
You make money from franchise fees, royalties, and perhaps other possible revenue streams like supplying a product, providing administrative support, or renting locations or equipment to the franchisees.
Your business must lend itself to having branch locations and it must be successful both financially and in terms of having its concept or method of operation “together”. The length of time that the business has been in operation is relatively unimportant. It should be in an industry or field that is expected to grow over the next several years or have a new twist if it’s in a mature field. It should be able to successfully compete for customers and it must generate sufficient sales and profits to “make the numbers work”.
A franchise buyer (with the right background) should be able to be trained in the day-to-day operations in a short period of time. They should realistically be able to recover their investment within a reasonable period of time from the earnings of the business.
Franchising is about getting an army of dedicated, hard-working business owners giving you an ongoing piece of their revenue stream.
A simple test of “Can I franchise my business?” is whether you could open company-owned branch locations [if you so desired] managed by a company manager. In most cases, “franchising a business” is a very similar process, except that instead of a company manager, you’d have a “dedicated” manager.
What Are The Advantages Of Franchising Your Business?
- Provides Expansion Capital — The franchise buyer puts up the investment to open the branch unit.
- Fast Growth — Franchising allows companies to grow quickly because the franchise buyer not only supplies the investment capital but also provides “dedicated” management, thus freeing up the franchisor’s time to open more units.
- Quality On-Site Management — Since the franchisee is more dedicated than a company employee, sales and profits should be higher, expenses should be lower, customer satisfaction should be greater, and quality standards should be maintained. Today, most franchisees are well-educated, experienced, former middle managers.
- Fewer Day-To-Day Operating Headaches For You — The franchisee handles the day-to-day operating decisions. They take care of employee problems, hiring, firing, etc.
- Less Corporate Overhead — Since the franchise owner takes care of the day-to-day operating responsibilities, the parent company support structure for franchise units should be smaller compared to company-owned units.
- Faster Market Penetration — Franchising can help a company penetrate the market quickly.
- Higher System-Wide Sales — Because the owner is on site, a typical franchise unit will have higher sales than a company-owned unit. McDonald’s® says that “We’ve discovered that the franchised restaurants do better than the company-owned”.
- Captive Market For Your Products — Franchising can provide a dedicated captive market to manufacturers.
- Financial Leverage — Franchising provides a way to cash in on your experience and knowledge by “selling” it to others.
- Opens Up Regional / National Account Opportunities — Some businesses, if they have branch locations, can serve regional or national accounts, whereas a single location independent can’t provide service to a national account that has multiple locations.
- Increased Buying and Marketing Power — A company with a growing number of locations can increase their buying and marketing power and lower the costs for all individual locations.
What Are The Disadvantages Of Franchising Your Business?
- Are Total Profits Higher With Company Owned Locations? — While a company operated store “on paper” may appear more profitable than a franchise, the profit must be offset by the additional corporate supervisory costs needed for company stores, and the possible reduced sales volume in the location due to the lack of the presence of a dedicated, invested local owner. Since franchising allows a company to open more locations (for the same dollar investment) in a fixed period of time (like 1 year), the total profits generated from multiple franchise locations should more than offset the higher profitability of one individual company location.
- Reduced Control — Some may say that you could lose some control by franchising your business. While you may lose some “instantaneous” control — like being able to walk into a store and change the layout, or paint the walls pink, or change the store hours — you maintain “delayed” control by informing the franchisee of changes they must make, backed up by the contract that they’ve signed with you compelling them to conform. Since a franchise owner is dedicated and wants and needs the business to succeed, in many ways, you have better control over a branch operation with a franchise owner than if a company manager was in charge.
- Ongoing Support Obligations To The Franchise Owners — Yes, you are obliged to provide ongoing support to the franchise owners. But the reality is that if you had company-owned locations rather than franchises, you’d have to provide even more support!
- Legal Concerns — The preparation of a Franchise Disclosure Document is not overwhelming and the document doesn’t reveal any of your trade secrets.But the relationship between you and the franchise buyer is a contractual one. Both sides have to live up to their obligations. Are there a lot of lawsuits in franchising?There are almost 1,000,000 individual franchises in this country. If lawsuits were happening all the time, there’d be no such thing as “franchising”.
- Individual Location Success Rate — While the success of an individual location may depend largely on the efforts of the franchise owner, the same could be said of a company-owned location being dependent on the efforts of a company manager. The franchisee’s commitment should give an individual location a better chance of success as a franchise.
- Dealing With Dedicated Owners — This is the double-edged sword. The franchise buyer is an “owner”, and if you don’t provide the support that they expect, you’ll hear about it, unlike a company manager who “goes along with the program”.
In the last decade, franchising has expanded to include an ever-widening variety of businesses, products, and industries. Its application to new concepts and emerging industries will only increase in the future.
The sale of franchises is relatively unaffected by the economy. In fact, arguments can be made that franchising does quite well in a weaker economy since the potential buyer is possibly stagnating at their present position, is eager to control their own destiny, and has assets available (such as equity in a home or a severance package) which can be used to buy a franchise. This increasing desire of people to own a small business gives you the opportunity to grow by franchising your business.
- First: Decide if you want to grow by opening branch locations.
- Second: Decide if it would be desirable to have committed owners operate your branch locations under your controls and standards, freeing up your time from day-to-day branch level operating headaches, giving you time to focus on growing the business.
- Third: Decide on goals for the first year of franchising.
Should You Use A Franchise Consultant To Franchise Your Business?
A franchise consultant is a management consultant who specializes in franchising. They should have years of knowledge and experience in helping companies grow through franchising and be an expert in guiding a business owner who wants to start franchising.
A franchise consultant should have lots of smarts and success stories and should be personable and able to establish a good working relationship with you. You should be able to trust and respect them.
Should you find the least expensive consultant? Generally, in life, you get what you pay for. The growth potential of your company requires you to get the best advice and guidance.
Most general management consulting projects, in any company, are usually about helping a company improve their operations or fixing problems that the business owner doesn’t know how to fix. This could potentially cause some subtle negativity or resistance on the part of the business owner.
But, in an opposite way, helping a company start franchising is a very positive, exciting project for the business owner because the consultant is helping to build the business owner’s dreams.
But dreams can attract conmen. Conmen who take advantage of the small business owner’s emotions and lack of time to check out the consultant’s background. Conmen who don’t have any clients who’ve achieved substantial success or who pad their resumes with companies they’ve never worked with or make other inflated claims of past results.
The reality is that it takes several/many years to successfully build a 100 unit franchise company. Be wary of any consultant who makes promises too good to be true.
Pros Of Using A Consultant To Franchise Your Business
- A consultant should have previous positive client stories/results that could be applicable to your concept.
- A consultant should speed up your development time by doing functions that you don’t have the time or expertise to do in-house.
- A consultant should be able to provide tried and true strategies for success.
Cons Of Using A Consultant To Franchise Your Business
- It costs money to hire a consultant. However, the right consultant should more than offset this expense by giving you the best return on any investment that you’ve ever made.
- If the consultant hasn’t got many years of successful experience and client success stories, they could cost you your chance of being successful at franchising.
- Be especially wary of consultants who list client companies that they’ve never worked with or didn’t help start in franchising. (McDonald’s, Dunkin®, and many others were started in the 1950’s. None of today’s franchise consultants assisted them in starting to franchise.)
Should You Use A Franchise Broker To Sell Franchises For Your Company?
You must be very selective when choosing a franchisee. You must only sell to those who have the right background, financial ability, work ethic, personality for working together, will follow your system, and will give a good reference to future franchise buyers. Never sell to someone just because they have the money.
Is It Hard To Sell A Franchise?
No. Selling a franchise is virtually identical to the interviewing process used for hiring an employee — but this “employee” comes to you with money.
When you hire an employee, you’re selling a relationship. It’s the same with a potential franchise buyer, only this is a relationship that will last years/decades. The franchise buyer should go into this with their eyes open. They should know the good parts and the “not so easy” parts of the business. This is not a high-pressure sale. In order to establish a solid relationship, you must possess a good knowledge of your business and industry, be warm and believable, and be a good listener. Selling is listening.
It’s Not Like Selling A House Or An Existing Business.
Selling a franchise is not like selling a house or a building or even an existing business. When you sell an existing business, there are the business’s several years of financial statements that must be analyzed and reviewed by accountants. When you sell a franchise, all you’re selling is an idea, a concept — a business that doesn’t yet exist.
And, once you sell a house or a building or an existing business, you have no further relationship with the buyer. (That’s why it’s okay to use a broker for that type of sale.) When you sell a franchise, that’s the beginning of a lengthy relationship. It’s like getting married. You must be very selective, especially with the first few franchises because later franchise buyers will call them for a reference. In a way, the first few franchisees become your “franchise salespeople”.
You Must Be Involved.
You must be involved in the selling process since nobody knows the business better than you or is more capable of explaining your philosophy to a prospective franchise buyer. And nobody has your passion or commitment to make this succeed.
What Are Franchise Buyers Really Buying?
- They’re buying your concept.
- They’re buying the future of your brand.
- They’re buying your experience and your trial and error.
- They’re buying the happy, positive referrals that they hear from your franchise owners.
- They’re buying your expected support, guidance, vision, and hand-holding.
- They’re buying the sales/profit expectations that they project themselves and also what they hear from your franchisees.
- They’re buying your trust and respect.
- They’re buying a “feeling” that if they invest in your concept and follow your system, they’ll have a good chance of being successful.
- THEY’RE BUYING YOU!
The reality is that no person can truly evaluate a business opportunity in several phone calls and a few meetings. Since there aren’t any franchises yet in existence, there are no referrals for the franchise buyer to call. All they can really decide is if they like the business concept and if they like you, trust you, respect you, and feel that you’ll be there to help them.
Business brokers or franchise brokers sound like they’d be an ideal way of selling your franchise. But a broker’s interest (to get a commission) may not be in your best interest. They may push prospective buyers on you who aren’t really right for your concept and operational philosophy. Worse, they may make promises or financial projections that you can’t keep or that violate federal laws. And brokers won’t be totally dedicated to your concept — they’ll also be working for other competing companies. Never, ever, ever let a broker “sell” for you. If you use them, use them only as a “lead referral” source like Google.
Are You Thinking Of Franchising Your Business?
We’re Here To Help.
Franchising lets you “sell” your knowledge, experience, and concept to dedicated individuals who put up the money to open and operate new locations.
You’ll be able to expand faster with less overhead, freeing yourself up from day-to-day branch level operating headaches, and getting the time to focus on growing the business while the franchise buyer pay you upfront franchise fees and ongoing royalties forever.
What We Do.
We’ve Helped Many Companies Grow Through Franchising.
They’ve Sold SEVERAL THOUSAND Franchises.
No Other Franchise Consulting Firm Can Match Those Results!
We’re Here To Help Now, And In The Future.
We help very small companies (and large ones) start franchising their businesses. Our experience, knowledge, personal attention, and quality of work are best in this field and we’re recognized as the leading franchise consulting firm in the country.
All of the work we do to help you start franchising — Planning, Research, Disclosure Documents, Operations Control Manuals, Marketing and Selling Programs — is based on our many years of experience helping successful franchise companies.
What Makes Us The Leading Franchise Consultants?
Many Client Success Stories
- We’ve got many success stories.
- Our clients have been described by social media sites, The Wall Street Journal, Entrepreneur, and many other local and national media as being hot new franchise concepts.
Attention To You
- We help build our clients’ dreams.
- We’re always available to you.
- When you call us, we respond immediately.
- We have long relationships with each client.
- Clients respect us, trust us, and like us.
- No other firm provides the ongoing support that we do.
- We’ve been doing this for over 30 years.
- No other firm can match our quality.
No Cost Surprises
- We always work on a fixed fee with each client.
- There’ll be no cost overrun surprises to you unlike most law firms, accountants, and consultants.
Best Advice And Guidance
- We know the right ways to do things, the traps to avoid, and the secrets to success.
- If we don’t think you’re ready to franchise, we’ll tell you what steps you need to take before starting a franchise program.
- You only get one shot at being successful at franchising. You’ve got to do it right.
We’re Here To Help.
- Now… and in the future.
We Help Clients Grow.
And, We Take Care Of Them.
“First class, professional, and personal.”
“They are state-of-the-art franchise consultants.”
“Easily, the best in this field.”
“Each franchise consultant really knew their stuff, and was a pleasure to work with.”
“Great franchise consultants.”
If you wish to start franchising your business, call us. We’re here to help.
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