Franchise consulting

Franchise consulting, a specialized category of professional assistance for investors, entrepreneurs, and enterprises, is a field which has arisen from the increased popularity and profitability of franchising.

Potential franchise owners (called franchisees) employ franchise consultants to help choose the correct franchise company ( “franchiser” ) in which to invest. Conversely, franchisers employ the franchise consultant to act as an agent between themselves and interested franchisees. The majority of franchise consultants offer their services free (or virtually free) of charge to the franchisee, primarily receiving remuneration from franchisers. So their statements of "free" services are incorrect. The money paid by a franchisee to the franchise company passes from the franchise company into the pockets of the franchise consultants.

Overview

Much of what is written in this section confuses 'franchise consulting' with franchise 'brokerage'. True franchise consultants are paid a 'fee for their services', not a commission when a franchise is purchased (which is the practice actually described herein). It is both unfortunate and misleading to call the broker a consultant, but many franchise brokers misleadingly call themselves franchise consultants. Consultants consult while brokers sell and are paid a commission for a successful job done. In addition, the hundreds of franchise brokers (that title themselves consultants) work primarily with franchise buyers and are paid by franchisors when a sale (a match) is made. The franchise 'consultant' in the United States is more often concerned with the practice of assisting successful business owners become franchisors of their particular concept.

Using franchise consultants has become an acceptable way to bring serious sellers and buyers together, essentially streamlining the “matchmaking” process. Along with a franchise attorney and franchise-knowledgeable accountant, a franchise consultant navigates the complexities of finding and/or attracting viable matches on behalf of franchisees and franchisers, provided they are truly independent (i.e. paid solely by the prospective franchise buyer). With the advent of the new Federal Trade Commission Rule that became effective in 2008, there will be more consultants advertising on the Internet and prospective franchisees and existing franchisors will have to perform due diligence on the non-attorney franchise consultants who are not required to be licensed under state or federal laws in the United States and in most of the world.

Much like a real estate agent, the franchise "recruitment consultant" typically charges no upfront fees to “buyers” (franchisees); instead, he or she receives the bulk of his or her income from “sellers” (franchisers) and thus operates as a biased conduit between the two. It is important to understand that franchisors do not employ franchise consultants, but they do employ franchise brokers who call themselves franchise consultants. They establish relationships with these franchise consulting firms. The role of the franchise consultant is to build a win-win relationship between the franchisor and the potential franchisee. Quality franchise consulting firms that have a large footprint in the franchising industry and help screen out the franchises that don't meet the high standards that are set by franchise experts.

Consultants' services are "free" to the potential buyer or franchisee only to the extent payment goes from the franchisee to the franchise company then into the brokers pocket, but these franchise brokers receive a substantial commission of up to 50% or more of the franchise fee the buyer pays to the franchise company. The potential buyer would pay the exact same franchise fee as he or she would pay if they had contacted the same franchise on their own. It is illegal for the franchisor to charge anything additional for the use of a Franchise Consultant, unless this is disclosed in the Franchise Disclosure Document (FDD). So why would a franchisors work with franchise consultants? They do because franchise consultants screen out all of the under qualified candidates and only introduce to them highly screened quality candidates that fit their business model. Quality franchises are not concerned with paying the consultant a percentage of the initial franchise fee because they are looking at the long term residual value of on-going royalties from the franchisee. Of course, there are a substantial number of franchises that use franchise brokers (misleadingly called "franchise consultants") as a way to sell a large number of franchises in a network where maximizing franchise sales is paramount over franchise network survival.

There are many licensed attorneys who act as franchise consultants and who center their practices on their expertise in franchising and who will consult/represent the franchisee or the franchisor under a fee agreement. Attorneys cannot take fees from franchisors and consult with the franchisee at the same time because this would represent a conflict of interest for an attorney under state laws. A consultant package from an attorney will, of course, be expensive, but the attorney has the incentive and the duty under the law to "vet" the franchisor and perform "due diligence" on the offering on behalf of his/her client when he/she offers a consultant package to a client. It is critical to use a franchise attorney who also has an MBA, as this will ensure due diligence from both a legal and business perspective.

A few larger franchise consulting firms have branched out themselves, essentially “franchising” their franchise consulting businesses. And industry publications such as Franchise Business Review and Entrepreneur regularly quote high performing franchise consultants as reliable article sources. High performing franchise consultants are those who have a past performance record of providing quality matches for clients and a high success rate of their clients. But buyer beware applies - many of these highly touted franchise consultants represent franchise companies that have little, if any, name recognition.

In addition however, smaller and more pragmatic consultancy practices may work much closer with smaller businesses and work with them to franchise their business over time. This enables the business to begin franchising their business much sooner, often within 2 years of successful operation of a local model and for much less money - therefore risk, than using some of the larger consultancy practices. These kind of franchise consultancy are paid for by the franchisor not the franchisee - therefore mitigates risk on behalf of the franchisee of being sold something which is not necessarily "right for them" but rather gives the franchise consultants a nice commission.

Benefits

A reputable franchise consultant can help a potential franchisee comprehend the numerous details of franchising, including:

*how to access the odds of success or failure of the franchise offered for sale.
*how to find the ideal franchise based on the franchisee’s background, capital, and expectations;
*how to read and interpret the Uniform Franchise Offering Circular (UFOC);
*how to understand the franchise agreement contract;
*how to evaluate trend and economic data;
*how to realistically examine personal strengths and weaknesses;
*how to uncover free and fee-based training programs for potential franchisees;
*how to market specific types of franchises; and
*how to build franchises.

Franchise consultants assist franchisors by:
*screening franchisee candidates and investors;
*giving the franchisor marketing, advertising, and training advice;
*evaluating companies' "franchise-ability"; and
*building building brand recognition and loyalty; and

Challenges

Franchisors are required to pay franchise consultants fees to generate interest in their franchises; hence, possible franchisees can be limited in their choices if a franchise consultant does not have many franchisors as clients.

Additionally, untrustworthy franchise consultants, motivated solely by profits, may suggest unwise franchisee-franchisor relationships purely to generate income from franchisors.

As of June 2007, there is no one international governing body dedicated to ensuring franchise consultants’ reputations nor is there any specific credential that a franchise consultant must obtain to give him- or herself the moniker. Consequently, franchisees are often reminded that reputable franchise consultants have prior experience as either franchisees or franchisors, have numerous satisfied clientele, and carry no unresolved complaints with the Better Business Bureau.

Career path

For many former franchisees and franchisors, becoming consultants is a way to take their careers in a direction compatible with their proficiencies. As of 2007, there is no formal higher education path or degree for franchise consulting.

References

External links

* [http://www.franchise.org International Franchise Association]
* [http://www.thebfa.org/ British Franchise Association]
* [http://www.worldfranchisecouncil.org/ World Franchise Council]
* [http://www.cafla.com/ The Central - Asian Franchise Association]