Sometimes I have to deliver bad news to a franchise candidate, but I’m not a dream crusher. I’m a dream realigner.
Cynicism can be a way of life in New Jersey. As a resident of the Garden State for most of my life, I understand that those of us from the Northeast tend to question everything. Many of us have a hard time accepting when something is done for purely altruistic reasons. You can imagine the reaction when I explain that as a franchise consultant, my candidates do not pay a cent for my services.
Caveat emptor
A few weeks ago, I received an email from a woman in the Midwest. She was already in the process of looking at a franchise and wanted to ask me a few questions. We met virtually on a Sunday for over an hour and a half since she was scheduled to meet with the franchise brand’s CEO the next day. As is my process, I asked her various questions to get a better understanding of her and what she is looking for, and why. She is a teacher and is already in burnout mode due to the pandemic. She was looking at a tutoring franchise that she had worked with in the past and liked their methodology. This franchise is not part of the concepts that I represent, and I had not heard of it before, but we continued to have a great discussion.
Further along, she mentioned that she is a single mom, and she recently purchased a home. Her goal was to continue working full-time for a year while operating this franchise for two weeknights and on the weekend. I asked if she was planning on partnering with someone else to run the business on the days she was not available and that was not in the plan. I gently asked her if she had the savings required so she could purchase a franchise. She quietly told me no. The franchisor told her that they offered a teacher discount so she thought it would be affordable for her. I pulled up a similar franchise and noted that the typical investment for a brick-and-mortar tutoring franchise can be more than $150,000. I further explained net worth requirements as well as liquid cash requirements. Additionally, they had a minimum royalty out of the gate of $750 or 18% of the gross profit.
When a stranger reaches out and wants my opinion about making a big, life-changing financial decision, I am going to listen and help in any way that I can.
As I absorbed this information it became clear that this person cannot afford a brick-and-mortar franchise and I was in the unenviable position of telling her the bad news. At that moment I was not a dream crusher but a dream realigner. Reviewing this basic information with her made me furious with the franchise that they did not take the time to speak with her about her finances to gain an understanding of whether this is even doable. That is a crucial initial step. I explained that even if she could afford this business that her goal of being open only a few days per week was not doable since the expenses of operating the business would not be covered by a few hours of work. How did the franchisor not understand that her goal was to continue working for a year and only allotting twelve hours per week to the business? Our meeting ended very somberly with her hopes of franchise business ownership dashed.
The best things in life are free
To be clear, since she was already working with a franchise I would not have been compensated for my time even if she had been awarded the franchise since she initially went to them directly. Furthermore, had it been a great fit for her I would not have tried to deter her from that franchise toward one that I represent. Too good to be true right? What is in it for me then? When a stranger reaches out and wants my opinion about making a big, life-changing financial decision, I am going to listen and help in any way that I can. We are still in the throes of a pandemic and there are so many people who helped me get my business up and running without a thought about themselves and what they would get out of it. Are all franchise consultants this way? No, but many are, and they are in this business for all of the right reasons. The goal is to help people understand the franchise world and make things less confusing so that in the end the person can feel better about their decision either moving forward or going in a different direction. Most franchisors are in business for all the right reasons too. But there are some bad apples out there who may not have a candidate’s best interests at heart and that is one of the ways a franchise consultant can help. A franchise consultant will make candidates aware of red flags and can prevent a very expensive — and potentially devastating — mistake.
To disclose or not to disclose
This candidate received the Franchise Disclosure Document (FDD) from the franchisor with zero explanation or guidance after just one meeting! Franchising is regulated by the Federal Trade Commission (FTC). The first Franchise Rule was put into effect on October 21, 1979, and that formed the Franchise Disclosure Document. This document can exceed 250 pages and it is broken into items. Here are a few examples of disclosed items: Reporting any litigation that the franchisor and its entities have been involved in; a detailed list of fees; obligations of the franchisee; an outline of the training that will be performed; and of course financial performance representations. A franchise consultant should offer a review of what an FDD is and explain each section so that the candidate has a better understanding of the document when they receive one.
One rule of franchising is that if a candidate knocks on the door of a franchise and works with them directly or with a franchise consultant, they will pay the same amount for that franchise.
One rule of franchising is that if a candidate knocks on the door of a franchise and works with them directly or with a franchise consultant, they will pay the same amount for that franchise. Meaning that the franchisor cannot increase the cost of the franchise for those working with consultants compared to those who go direct. As outlined in the case story above, there are many benefits of working with a franchise consultant. We can provide a sounding board for the candidate to really express how they are feeling about what we are discussing and not hold anything back. This takes time of course, but if halfway through reviewing a franchise they truly get the sense that it is not a good fit due to any number of reasons then they can share that information with the franchise consultant and the consultant can convey the news to the franchisor. Many people do not enjoy conflict and taking this off their plate is very helpful. Franchise consultants do not have quotas and they are completely autonomous. If a consultant does not like a particular concept, they never have to show it.
Servant leadership reaps its own rewards
Representing over 500 concepts is no easy feat. It requires listening to daily webinars about the franchises and then doing a deeper dive to understand them better if the goal is to show a specific franchise to a candidate. My job is not to be the expert but to gain a good understanding. Likewise, speaking to candidates and gathering in-depth information from them helps the matchmaking process and enables me to narrow down the choices to present. So how are franchise consultants compensated? We are similar to an executive recruiter, if a candidate is awarded a franchise then compensation is provided by the franchisor to the consultant only if the consultant introduced the candidate. In this case, the candidate canceled her meeting with the CEO that was scheduled the following day. As a franchise consultant, I will continue to lend assistance to her and perhaps one day congratulate her on becoming a business owner even if it is not a franchise.
The old adage, ‘If it sounds too good to be true, it probably is’ isn’t always correct. In fact, the suspicion, cynicism, and doubt that are inherent in this belief can and does keep people from taking advantage of excellent opportunities. —Richard Carlson