If you’re looking to franchise your business and you speak to a franchise consultant who claims they’re a “one stop shop” and that they’re going to handle everything for you, here are 4 warning signs about why you should take caution and not work with them.
We often get calls from people who have just franchised their business and think they’re on the right track. Something goes wrong, and time and again, it comes down to the fact that they did not franchise the right way.
When it comes down to it, you’re just buying a bunch of generic paper. It doesn’t cover best practices. In the end, it doesn’t allow you to franchise the right way. Even worse, it’s unethical and wrong, and may cost you in the long run. Here are the warning signs you should look out for.
1. They’re a “One Stop Shop for Everything You Need”
Many times, bad franchise consultants promise that they’re a one stop shop and that they’re going to handle everything for you, including:
- Legal FDD Development
- Franchise Agreement preparation
- Trademark registration
- Operations Manual preparation
Take a look at the first three major deliverables. FDD Development, Franchise Agreement development, and Trademark registration. They’re all legal services which should be prepared by a law firm - not a consultant. Which brings us to our next point...
2. You Don’t Have a Direct Relationship with Your Lawyer
Franchise consultants should not be representing that they’re going to be handling the legal aspect of franchising your business. Many times, it’s very ambiguous in their proposals and may say things like:
“We’ll have the FDD and franchise agreement reviewed by a lawyer…” or “we have in-house lawyers…”
What these consultants are really trying to do is monetize and profit off of the legal services of a lawyer. What does this mean for you? You’re probably going to get subpar services from a lawyer who is working at a very low rate. Also, in some cases, these consultants don’t even have your documents reviewed by a lawyer at all.
So, make sure you have a direct relationship with your lawyer: (1) You pay them directly, and (2) You should be speaking to them directly. Why? Because they need to be accountable to you.
You may be thinking, “Why would I care about this as long as the product is good?” Well, from what we’ve seen, the product is not good and many times, the work has to be redone anyway. If their proposal seems like they’re selling the idea of franchising, they probably are.
3. Franchise Consultants that say they’re going to do your franchise sales but don’t disclose financial information
In reality, franchise sales are hard. You have to take a 5 year growth strategy and grow your brand organically first. When we take a deeper look into it, many times, there isn’t even Item 19 Financial Performance Representations.
There are two common scenarios:
One brand doesn’t have an Item 19 in their FDD at all. Why? Because the financial data just is not good which goes to the bigger issue that the business was not ready to franchise in the first place.
Another scenario is having great financials and not reporting them in their item 19. Consultants may tell you not to add them to your Item 19 because it’ll “cause delays” and “slow down the process”. Good franchisors have transparency. Especially when you have great financial data, it would be a mistake not to disclose this in your FDD which will hurt franchise sales.
4. Outdated and Generic Operations Manuals and Videos
These one stop shops usually include a franchise Operations Manual and sales video. Your Manual is an always evolving document and should be specific to your business. But more often than not, we’ve seen franchisors get generic operations manuals with information about setting up a fax number and handing out business cards as their marketing strategy.
You’ll also probably get an outdated brochure and franchise sales video that can be relevant for any business. So, Warning Sign #4 is not getting a custom, specific-to-your-business Operations Manual, sales video, and brochure.
There are plenty of amazing franchise consultants out there. But, if you see these warning signs, take caution before you franchise your business with their help. Too many startup franchisors get hurt and end up wasting time and money.