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I have two concerns about the franchise industry – one regarding prospective franchisees, and one regarding new franchised offerings.
First, with federal changes in the disclosure regulations, it is no longer necessary to disclose background information on franchise ‘brokers’ – those individuals that often bring a prospect to a franchise opportunity (and who almost always refer to themselves as “franchise consultants”, which they are not, they are brokers, agents or sellers working on a commissioned basis). The reason I am concerned with this development is that buyers will not have an opportunity to better know who it is they are dealing with in the form of a broker. If the broker has a fraudulent background, and if that broker develops a ‘relationship’ with a buyer (which they most likely will), then the buyer can be at a great disadvantage. (As a fee for service franchise consultant, I am paid by my client to watch out for their best interests, not use a relationship to earn a commission.)
Second, although most people outside of the industry do not understand this point, it is very easy (short of a registration state) to become a franchisor. Meeting federal guidelines is actually quite easy, therefore, the title ‘franchisor’ may equal nothing more than filling out certain paperwork. When this occurs, there is a great chance that the buyer of this poorly constructed offering will suffer. (BTW, I spend at least three months organizing and mentoring with new franchisors, and that is after they demonstrate that they have a viable business to franchise. Franchising a business requires a tedious, concentrated effort.)
So, these two issues will occupy a portion of my thinking and efforts in 2008.