Use a Franchise Broker

Telling the Good From the Bad

The major advantage of a referral site is the principal disadvantage of a broker site: pressure to buy. Recently, I sat in a seminar conducted by an outside sales agent who stressed the emotional aspect of buying a franchise and how the sales process can be manipulated to ensure that the prospective franchisee makes a speedy decision. This is not an uncommon aspect of all franchise sales, even in those conducted internally by franchisors. However, it's unnecessary for you to get into that sales cycle until you're ready and have explored all the opportunities available to you. Remember, the franchise salesperson has been through this process many times before and is experienced in closing the deal. This is likely to be the first and only time you buy a franchise. You need to come to the table armed with information.

Many prospective franchisees take brokers' recommendations as gospel, deferring to the brokers' experience. Don't let this be you. Conduct the type of thorough research that most franchising professionals recommend.

For the sake of fairness, franchise brokers who are reputable don't pressure you to buy a franchise when you're not ready or when the franchisor you're interested in isn't right for you. Unfortunately, determining whether particular brokers are reputable can be difficult. Therefore, the only way to know whom you're dealing with is to work with franchisors and not their sales agents.

How can you tell the difference between a referral site and a broker site? It's really easy-ask. When you're contacted about your interest in a franchise, ask the salesperson whom he or she works for and whether that's in the capacity of a broker.

When you receive a copy of the franchisor's Uniform Franchise Offering Circular, take a look at Item 2. The government agencies that regulate franchising require franchisors to disclose to prospective franchisees whether the franchisor is using a broker.

If you're asked to provide personal financial and other information online, look at the company's privacy statement and determine who's going to see your information. If it's a franchisor, the likely recipient is only the franchisor. If it's a broker, he may be sharing your information with all his clients-many of whom you may have no interest in. Be careful, because many of the applications online ask for very detailed information and you need to know who has access to your data and how they'll use it.

Unless you're in a hurry and like to take unnecessary risks with something as important as investing in a franchise, there really is no reason to work with a broker. Purchasing a franchise, while a successful way for many people to go into business for themselves, is risky enough. Don't increase your risk of missing the right opportunity simply because it isn't on a broker's client list.

Michael H. Seid, founder and managing director of franchise advisory firm Michael H. Seid & Associates, has more than 20 years' experience as a senior operations and financial executive and a consultant for franchise, retail, restaurant and service companies. He is co-author of the bookFranchising for Dummiesand a former member of the International Franchise Association's Board of Directors and Executive Committee. Kay Marie Ainsley, managing director of Michael H. Seid & Associates, consults with companies on the appropriateness of franchising; assists franchisors with systems, manuals and training programs; and is a frequent speaker and author of numerous articles on franchising.

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