Offit Kurman, Attorneys At Law | Franchise & Business Law Group | Working with Consultants to Select a Franchise Opportunity
This links to the home page
Articles & Resources

Working with Consultants to Select a Franchise Opportunity

09/29/2009
While most ordinary consumers can rattle off the most famous franchised brands, there are hundreds of smaller brands with promising franchise systems struggling to reach and identify prospective franchisees. For entrepreneurs looking to invest their life savings—and more—what resources are available to assist in the process of selecting a franchise that best matches their resources and aspirations?

Magazines and websites like Franchise Times are a great place for the fledgling franchise prospect to begin navigating the sea of franchise opportunities. However, for those seeking more personal guidance, franchise consultants, often referred to as “franchise brokers”, can provide one-on-one, personalized assistance in the selection of a franchise opportunity. Examples of consultant networks include FranChoice, FranNet, and The Entrepreneur’s Source.

Why work with Franchise Consultants?

Franchise consultants are specially trained to conduct personality and financial analyses of franchise prospects, thereby narrowing the industries and types of franchises to which they recommend to their clients. In addition, the consultant networks typically limit the number of directly competitive franchised concepts in their inventories, thereby further limiting the overall scope of a franchise prospect’s necessary investigations. Importantly, well-established consultant networks also typically scrutinize the franchisors for “red flags”, such as potential solvency issues, excess franchise terminations or unit turnover, or substantial litigation with franchisees, and remove troubled companies from their inventory.

Such a franchise consultant is generally paid on a commission basis by the franchisor once the client pays his or her initial franchise fee to the franchisor. Therefore, few franchise consultants can afford to waste their time conducting in-depth evaluations and then linking prospects with franchises with which they are unlikely to be compatible. If the consultant knows certain franchisors will be unlikely to consider you as a candidate, or that you will not be able to obtain sufficient financing for certain concepts, then these franchises will be left off of the table when you and the consultant discuss your opportunities.

What do I need to be Aware of if I work with a Franchise Consultant?

Franchise consultants are typically paid on commission based on their referrals of candidates who ultimately enter into franchise agreements with the franchisors in their network’s inventory. Thus, they have the inventive to direct you only to those franchisors that work with the particular network to which they belong. As a result, even if you work with a reputable broker, you need to independently research the opportunities they propose, and remember that there may be other opportunities out there in the same industry that are equally or better suited to you and your unique situation.

Obtaining answers to the following questions can help you in the process of selecting a consultant to help you search for a suitable franchise opportunity:
  • What tools and assessments does the network use to help determine the franchises that you should consider?
  • Does the consultant have prior experience in franchising, particularly as a franchisee, aside from their consultant role?
  • How long have they been a consultant? Do they have credible client references?
  • What percentages of their clients live within sixty miles of your location? Consultants with local clients are motivated to make sure that their clients succeed, since their reputation in the community is important for obtaining word of mouth referrals.
  • Do they provide other consulting, business sale or business coaching services, or are commissions from franchise sales their sole source of income?
Finally, you should be wary of any consultant who talks too much about how much money you can expect to make if you purchase any particular franchise. Such comments are likely to be illegal under franchise sales laws, and experienced franchise brokers should know to steer away from any claims about possible financial performance.

In summary, franchise consultants can provide specialized and personalized assessments in order to better match you with franchises suited to your goals, experience and capabilities. By researching and selecting a reputable consultant, you can feel more confident that the franchise you ultimately select will be right for you.