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When to Run from Your Franchise Broker
by Marc Stephens
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If you search the Web for articles and advice on using a franchise broker, you will quickly find article after article putting them down; claiming they steer you in the wrong direction, that they only show you their franchise, etc. etc. As a franchise broker I find most of these articles rather insulting, but as I watch more and more fellow franchise brokers operate, I am forced to realize that these opinions do not exist without merit.
Rather than defend "all franchise brokers," I think it's time to let the world know that just like any industry, all franchise brokers are not created equally. I consider myself to be an honest and ethical person both in life and in business, but have learned that unfortunately not everyone in my industry conducts themselves in such a manner. So, rather than sit by letting the bad brokers ruin the reps of all brokers, I have created a list of things that can quickly determine the true value and ethics of a franchise broker.
1. If Your Franchise Broker Speaks Poorly of Franchises NOT in His Portfolio
Allow us to be biased, as promoting our group of franchises is how we make our living. But, any smart and realistic franchise broker should be well aware that we represent a fraction of what is actually available. A lousy and lazy franchise broker may speak negatively of franchises not in his portfolio; a successful one will use the opportunity to broaden his knowledge of the industry and even try to align himself with the other franchises he finds his clients are attracted to. Either way -- a good franchise broker knows and respects that you are looking at other franchises; a bad one does not. If yours does not -- run!
2. If Your Broker Seems Shocked or Offended When You Don't Jump at at Least One of His Four Suggestions
Some franchise brokers are taught to listen to a client's skills and goals, and then to present three to four franchise opportunities. If you don't like any of the four suggestions then it must mean they didn't hear you correctly or else you are not correctly explaining your skills and goals. I always found this to be silly. These days people typically look at a lot more than four franchises before making a decision, and any good franchise broker knows this. If your franchise broker seems shocked or offended that you don't jump right on one of his four suggestions -- run!
3. If Your Broker Promotes Franchise Brokering as Your Best Opportunity
If franchises knew how many of the brokers they pay tell their clients, "Why own a franchise? There is a lot more money to be made in being a franchise broker than in being a franchise owner," they would probably choke. Sure we run across candidates who may indeed be a good fit for this business, but despite the truth, it's very easy to make this business seem very easy and very lucrative. Respectable franchise brokers should not steal opportunities from the franchises they represent to make a few easy bucks selling the illusion of easy money as a franchise broker. Some are more successful than others in this business, but being a franchise broker is anything but easy. If your broker tells you right out of the gate the easy money is in joining him as a broker -- run!
4. If Your Broker Steers You Away from All Franchises and into a "Business Opportunity"
I was recently on the website of a franchise broker who stated fact after fact on the benefits of owning a franchise opposed to starting your own small business. Things like "strong support network," "a lot fewer franchises fail than independent business," etc. etc. I clicked his "My Favorite Franchise" link to find that his favorite franchise wasn't a franchise at all! It was a "business opportunity," and the reasons he favored it was because it did not carry any of the "baggage" a franchise carries; such as royalties, control, large investment, etc. Not that there aren't some great business opportunities out there, but who is this guy serving?
Business opportunities are generally easier to sell because they are lower investment and we can promote them based on "how much money you will make" -- something that is highly illegal in franchising. And business opp deals tend to close faster than franchise deals. This broker chose a Biz Opp as his favorite not because it can or will make YOU -- his supposed client -- more money, but because it makes him more money; faster and with less effort. I think "franchise brokers" who spend their time selling against franchises while promoting cheap, unregulated business opportunities are doing no one any good but themselves, and are the primary reason brokers have earned this "snake oil salesman" stigma. If your franchise broker starts trying to sell you a business opportunity based on how much money it is going to make you -- and with fewer headaches, expenses or hassles of an actual franchise -- run!
5. If Your Broker Pressures You into Making Decisions
I once heard a franchise broker say that franchise candidates are grapes -- and within a few days they turn to raisins. Basically -- press them into making a decision fast or else they will become raisins. I've done pretty well in this business, but I have yet to see a deal happen as quickly as this statement insinuates. In fact, most of the deals I have been involved in take months to come to fruition. Had I been impatient and pressured, or given up on my candidates for not making a decision right away, I would not have made a nickel in this business to this day. Buying a franchise is a very big and very important decision for someone to make and any good franchise broker respects this. While it is possible that someone can come along and buy the territory you are interested in while you do your due diligence, I see this line used far more often as a tactic to pressure someone than it being fact. If your franchise broker pressures you into making a quick decision, or eludes that you won't be taken seriously unless you are ready to buy now -- run!
6. If You Know More About Franchising Than Your Broker
Anyone can be a franchise broker. I mean anyone! You can spend a few thousand and join an organization or you can start calling franchises asking if they will work with you as a broker and abracadabra -- you are a franchise broker. No licensing, no tests, no real training. I have attended conference calls where franchise brokers didn't even know that "cash" and "liquid" were synonymous. Frightening! The franchising industry is huge so you cannot expect your broker to know everything, but he should be a source of knowledge to you. If your franchise broker stammers and stutters over simple questions about this industry -- run!
Is this article meant to run down franchise brokers? Heck no -- I am one! This article is meant to rebut the article after article you read running all franchise brokers down as used car salesmen. There are good and not so good franchise brokers in this world and unfortunately more bad than good. At the same time, a good franchise broker can and will offer you a wealth of information, inside tips, guidance and understanding; making your franchise exploration a lot easier and less stressful. If you are working with a franchise broker and feel he's selling snake oil, don't be so quick to judge the industry as a whole -- but instead consider finding yourself another broker. - Marc Stephens