The Risks of Using a Franchise Consultant
Jan. 3, 2023
In the process of pursuing a franchise opportunity, you might run into someone called a franchise consultant, who may even work for a larger franchise consulting firm. This person promises to match you and your interests and abilities to the best franchise opportunity out there for you. Should you agree to work with that person or firm?
At first, using a franchise consultant may seem like it can save you time and money—but you must realize that franchise consultants are like brokers in any other field. They are paid for what they do. For franchise consultants, their fee is paid by the franchisor when you sign on the dotted line. Don’t you think they’ll be tempted to lure you into a franchise agreement that rewards them the most handsomely? That could be considered number one.
A better alternative, in addition to researching the franchise opportunities you are attracted to, is to use a franchise attorney to review all documents involved in the franchise process and to help you cover all the legal and financial bases that can pave the way for a more secure future in the franchising world.
If you’re in or around Seattle, Washington, contact the franchise attorneys at Bundy & Fichter PLLC. Their attorneys understand franchise law like no other firm in the country and have guided countless franchisee hopefuls along the path to obtaining the business opportunities they desire. The firm proudly serves franchise seekers throughout the United States, including Washington, Oregon, Texas, and Florida.
Role of a Franchise Consultant
A franchise consultant, sometimes known as an adviser, coach, or broker, is someone who represents a select group of franchisors, who in turn will share some of the proceeds from the closing of the deal with the consultant.
Thus, up front, you as a franchise seeker will not be required to fork over any funds, which can be an attractive selling point. Everything monetary will be done at the end when the deal is done. The consultant will then receive a fee of somewhere between $10,000 and $15,000, perhaps more.
The fact that consultants are paid by the franchisors they represent should be clue number one that their instinct might be to lead you to the most profitable opportunity—but profitable for them, not for you. With a portfolio of between 100 and 200 franchises, a consultant also is representing only a small percentage of the 38,000-plus franchise opportunities available.
If you add all the consultants together, according to the annual Franchise Development Report, consultants represent at best 46 percent of all opportunities out there. This means that 54 percent of all franchises will be unrepresented, and among them may be the very opportunity you’re seeking.
The key for the budding franchisee is a report mandated by the Federal Trade Commission called the Franchise Disclosure Document (FDD). There are 23 sections in this document that cover the major financial, legal, and business support aspects of the franchise.
FDDs are an important starting point for evaluating a franchise opportunity. The problem is, when dealing with a franchise consultant, you may never see the FDD. The only document you’ll get is the Franchise Agreement, which binds you to the franchisor and requires a franchise fee, which may be hefty.
Keep in mind that once the deal is over, your consultant recedes from the scene, never to be heard from again. You will then have to deal with people at the franchising headquarters whom you may never have even spoken with before.
Not all franchise consultants are only geared toward making a profit. You will need to shop around and ask to speak with other clients who’ve worked with them to get a better picture of what’s in store. Better yet, contact a franchise attorney at the beginning of the process.
The Benefits of Hiring a Franchise Attorney
In contrast to a consultant, a franchise attorney has no portfolio of franchise opportunities to sell you. The attorney is there to review the FDD and the Franchise Agreement to protect your rights. In the search process, the attorney can also review the track record of the franchise or franchises you’re considering and waive the red flag if something seems amiss or if the FDD is trying to hide crucial facts.
You may have to conduct your own research to find the opportunities you like the best, but your franchise attorney can direct you to trade groups and other resources, including many online resources, that can facilitate your efforts and help you find an opportunity that fits your skills and interests.
With a skilled franchise attorney, there will be no rush to close the deal. Once everything seems just right, and the franchisor and its FDD have passed the test, you can move on to the final phase of signing a Franchise Agreement, which your attorney will vet to explain all the details to you and help you negotiate for changes if needed.
Trusted & Experienced Legal Guidance
For those of you looking to own a franchise to secure your financial future, the best path is to take your time and make sure the opportunity you find is the exact fit for you, your skills, your interests, and your financial situation. Bundy & Fichter PLLC has been helping individuals like you navigate the franchise universe and arrive at a destination that checks all the boxes on their wish list while providing clients with the peace of mind that everything has been done with all necessary safeguards in place. Contact the firm immediately if you’re looking to buy a franchise. From Seattle headquarters, Bundy & Fichter PLLC serves clients nationwide.