Franchise consulting
From Wikipedia, the free encyclopedia
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.
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[edit] Overview
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. With the advent of the new Federal Trade Commission Rule to be 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 conduit between the two. Consultants who charge prospective franchisees for their services mitigate some of the conflict of interest that could possibly be present for the "no fee" consultants in the industry.
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.
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.
In addition however, smaller and more pragmatic consultancy practices such as International Franchise Corp tend to 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.
[edit] 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
[edit] 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.
[edit] 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.
