When Franchise Brokers Become Valued Advisors
November 2, 2013 8:46 am 10 CommentsMany people are wary about using franchise brokers for fear that the broker will talk them into buying a franchise they really don’t want. Franchise brokers are, first and foremost, sales people, and given that they don’t get paid until they make a sale, there’s good reason to be concerned about using a broker when you’re thinking about buying a franchise.
On the other hand, most people who buy houses use a real estate broker or agent, and they also are sales people who don’t get paid until they make a sale. Will they talk you into buying a house you really don’t want? Possibly, but it’s less likely if you do your homework and know what you want to buy.
A Broker’s Value
Using a franchise broker – a sales person who represents multiple franchise opportunities – is not an excuse for ignoring the homework that you should do prior to buying a franchise. When you know what you want to buy (because you’re passionate about operating a particular kind of business, or because it’s a “hot” franchise), and you know what you’re qualified to buy (financially and skill-wise), a franchise broker becomes an advisor, every bit as valuable as an accountant or lawyer.
Jason Killough
But what if you don’t know which franchise you want to buy, or what you’re qualified to buy? One franchise broker thinks that’s all the more reason to call him, understandably. I’ve known Jason Killough for some 20 years. In fact, he used to sell franchises for me when I was a franchisor. Since 2009, Jason has been a franchise broker in Dallas, Texas. He’s part of The Entrepreneur Authority, one of the most credible franchise broker networks in the USA. “When a prospect doesn’t know what to buy, I can help identify opportunities that the prospect might not even know about,” explains Jason, who represents a variety of franchise companies.
Match Opportunities & Expectations
Of course, it’s not enough to identify opportunities for you. A good franchise broker will also help match opportunities to your expectations and skill set, as well as your checkbook. And again, Jason knows how to be helpful. “I help my prospects with their due diligence,” he continues, “and I save them a lot of time. I not only know who the franchisor will accept as a franchisee, but I also know who the lenders will accept, including any ‘blemishes’ that may be on the prospect’s credit report.”
Perhaps the best part of working with a broker is the fee – it’s usually paid for you by the franchisor. Franchise brokers are working for commissions. Some may charge incidental fees for training or personality assessments, but in most cases you won’t pay the broker – your franchisor will.
You are not required to use a franchise broker, but all things considered it may be a good idea. If at any point you think a broker is leading you toward owning a franchise that you don’t want, walk away, stop answering your phone, or simply tell the broker, “I don’t want to own that franchise. Can you help me find a better choice?” If he or she is worthy of being a franchise advisor, the broker will help you find a better choice!
Categorised in: Blog Articles, Buy a Franchise, Franchise due diligence
This post was written by Dr. John Hayes
10 Comments
Thank you for explaining this. I have been really overwhelmed with the process of choosing and buying a franchise but I was hesitant to hire a broker. I just needed to understand what was in it for them, I guess! I wouldn’t want to just hand the process over to someone else, but it sounds like that’s not what I would be doing. It would just be like having a guide to handle certain parts of it, and while was doing my own research they might be able to inform me from their experience on aspects I might not think of. Does that about describe it? I think I might be able to let go of some parts of this just for the sake of my sanity.
So the franchise broker is like a salesperson that gets commission on the sale, only after he/she makes the sale, and that commission is paid by the franchisor. The franchisee pays nothing to the broker. I was just trying to understand what motivation a broker would have to encourage me to buy one franchise over another. Do different franchisors tend to pay more than others? Do they “represent” me in that they would have my best interests in mind? I can’t imagine it would be good for their reputation if they didn’t do right by both franchisor and franchisee though.
You got it, Daisy. A broker can serve as your sounding board.
Hello Rene. Franchisors may pay half or more of the franchise fee to the broker so the brokers can get a generous reward. They are highly motivated. But you are right that they have to serve two masters in a sense because it won’t help their long term reputation to disappoint one or the other. Before they agree to work with a franchisor, they understand the franchisor’s deal and they know who they need to find to fit the requirements. So part of the equation is already solved before they go to work. Can they make a case for you if you’re not a perfect fit? Yes and they likely will because they want to get paid. Good brokers also understand your requirements when they agree to help you find a franchise so in that sense they will represent your best interests. Ultimately they’ve got to find a match — your requirements and capabilities must match the franchisor’s requirements and opportunity — and when the broker does that successfully, time after time, both franchisors and prospects want to “hire” the broker.
Hi John, I don’t live in Texas so I guess I can’t hire Jason Killough as my franchise broker. If I want to find someone locally, what is the best way to get a referral to someone who is reputable and trustworthy? I’m not sure who to ask who won’t refer me to someone just because they’re getting something out of it, and then find myself with a lousy broker. As others have pointed out, even though I’m willing to do the homework but I still want someone who will have my success in mind when they are working with me. Also, when you do these articles do you get paid to mention someone in particular?
Hello Mark, and thank you for your questions. Keep in mind that the franchise brokerage business is (often) also a franchise. I mentioned The Entrepreneur Authority in the article and said that I regard that group as credible and one of the best brokerages nationwide. There are others that do a great job, such as Transworld Business Advisors. You should check with the International Franchise Association for listings of brokers — even though a brokerage may be based in a state distant from you, the organization may have a franchised office in your area.
As to your question about me getting paid for mentioning someone in an article . . . no, I don’t get paid for it. If I accepted money for promoting someone or a company I would disclose that information at the end of the article. That said, I should disclose that United Franchise Group, which franchises Transworld Business Advisors, pays me a sponsorship fee when I teach The A to Zs of Buying a Franchise at the International Franchise Expo, which will occur again in June 2014 in New York City. I frequently promote the companies of United Franchise Group. I know the CEO and many members of United’s senior management and they are among the most reputable people in franchising.
Dr John Hayes
I recently went to a franchise trade show and came across the United Franchise Group and all the brands they push. I have to say, if the folks they had manning their booth are any indication of the type of culture in that system, then that is one scary bunch! They were like VULTURES at the show…physically pulling any passers-by into their booth even if they did not want to talk to them. Never seen anything like it.
After researching this company, their brands, and their leadership, I learned some very disturbing information, that, even if only half of it is true, I cannot see how anyone could recommend them (or be on their Board, for that matter!). It appears their CEO Ray Titus has been sued many, many times (and lost) by former franchisees for deceptive trade practices.
Also, this is just one example of their poor track record…below is their SBA Loan Default history for one of their brands, EmbroidMe:
EmbroidMe Franchise
EmbroidMe U.S. franchises in 2008: 375
EmbroidMe U.S. franchises in 2012: 250
Growth in franchise units 2008 – 2012 (#) -125
Growth in franchise units 2008 – 2012 (%): -33%
SBA loans granted since 2001: 45
SBA loan failure rate: 40%
Sources: Entrepreneur (growth), Coleman report (SB)
Todd, thank you for your observations and information. When a franchisor reaches a certain size, failures, lawsuits and criticism are inevitable. And the “facts” are not always clear. It is not at all unusual for franchise networks to shrink in size at various times in their development. In fact, it’s erroneous to imply that a franchise should be avoided because it had negative growth. Franchising is not for everyone. It’s painful to release franchisees, but it’s also sometimes necessary because the franchisee didn’t produce, or the franchisee didn’t follow directions, or other factors (i.e. competition) blocked the franchise unit’s growth. And sometimes it’s absolutely the franchisor’s fault. I’ve seen the United Franchise Group at work — I’ve known the company for at least a dozen years — their people are aggressive — when they appear at franchise expos they are there for the purpose of finding buyers for their franchise units. I can’t fault them for that, even though they may scare away many prospects. At the same time, every prospect (as you seem to have done) has to decide if this methodology suits them, and also (as you’ve done) do the homework on the company to arrive at a decision. But even if you come away with a negative impression, you cannot deny that United Franchise Group includes hundreds of successful and satisfied franchisees — many of whom who have been with the company since its inception and who own multiple units.
Having owned franchises with several organizations beginning in the 1980’s, here are some observations, particularly as they pertain to United Franchise Group. I have been a franchise owner with UFG – specifically, the IZON Global Media brand – only since May of this year. Fortunately, for more than a year before that, I was able to observe from the inside how the company operates, as I was retained to carry out some corporate responsibilities. If I did not think highly of that company’s leadership and its integrity, if I did not see genuine potential, there is no way I would have become a franchisee with them.
And I have a basis of comparison, with both success (having started, built and sold my own franchises with two franchisors) and failure, as another franchise I purchased tanked during the Great Recession. A final comment: Although I have never used a franchise broker, I concur with John’s comments and how it “may be a good idea” to use one in today’s marketplace. Whatever you choose to do, there’s a lot of info available; careful research is the key.
Thanks for sharing this article John. I agree that there’s nothing wrong with being a salesperson and those that are have nothing to apologize for as long as they do it ethically. However, Brokers are not salespeople. That is not their job. When done right it is a consultative process and not a sales process. Polar opposite. In fact, I tell all of my candidates that I will never sell them anything. That’s not my job.
Here are reasons why Franchisees use Franchise Advisors/Brokers
Reduce Risk
Find options you would have not found on your own
Increase your odds of creating the best-fit (culture, etc.)
Expert advice vs. relying on the untrained eye
Due diligence assistance via checklists and tools
Save Time
More organized, buyer-friendly approach
You become prioritized by the Franchisor right away
Expand Your Network
Build your success Team – Lending, HR, Legal, Technology, Financial, etc.
On-going association and collaboration if the broker lives in the same market as the franchisee
No incremental Cost
The price is the price is the price
And since you are saving time, you probably are saving money.
I invite those who replied to your blog who are exploring franchise ownership options to attend our monthly webinar this Thursday, November 21 from 1:30 to 2:30 pm CT. Please register in advance at:
http://www.eauth.com/upcoming-e-learning
Also a note for Matt Johnson, I do work nationwide, not just in Texas. You may feel more comfortable working with a local franchise broker you can meet in person. Either way, I would be happy to talk to you selecting a broker. Feel free to e-mail me at jkillough@eAuth.com if I can assist in any way.
Jason Killough
jkillough@eAuth.com
http://www.eAuth.com