by David Pearson & Simon Lord
last updated 21/08/2019
Choosing a franchise consultant
by David Pearson & Simon Lord
last updated 21/08/2019
If you have a successful company, you might well like to expand it further. You might have been told by a consultant that you should franchise it. But what if he wants a lot of money upfront to prepare the franchise package? How can you how tell if he is reputable and that the work will be useable?
Let's first discuss why you would consider using a franchise consultant to help you franchise your business. There are three main reasons: time savings (you don't have to go through a learning curve); benefit of experience (knowing what works and what doesn't); the impact on your business (downtime is minimised). A good consultant will save you time and money overall by having 'been there and done that' many times.
The costs involved in establishing a franchise are considerable, so it is crucial when engaging a consultant to choose carefully. Listed below are some key matters to consider when engaging a consultant.
How do you find a consultant?
- Don't just listen to the first person who says, 'You have a great business - you should franchise that, and I can help you.' Learn about how franchising works and what the benefits and pitfalls are. Read our articles Five Major Myths for Intending Franchisors and Five More Myths.
- Don't just listen to one person. Once you have learned about franchising, go and talk to two or three experienced consultants who will tell you about the process of franchising and how they can help. Each will give you an hour or so of their time at no cost, and you'll learn a lot. Find a list of consultants.
- Do you feel you can work well with the consultant? You will be spending a lot of time with them and sharing your secrets of success. A good and trusting working relationship is very important.
Check them out
- Find out and confirm what experience the consultant has had. Ask for plenty of references and follow them up. It's important that you don't just talk to people they are doing work for right now - ask for details of people they did work for three or five years ago. Do you recognise the names? Did they franchise successfully using the consultant's advice? Are both the franchisors and their franchisees making a reasonable return on their investment? This is really important. Anyone can produce a plan that looks good on paper, but it's only a few years down the track that you can see whether it really was good advice or not.
- Find out what reputation in the industry the consultant has by asking other franchise people. New Zealand is a small country and it shouldn't take long before you come up with strong recommendations for or against. Talk to franchise bankers, lawyers and accountants before you commit to anything.
- If the consultant is a member of FANZ they must provide you with details of their experience. If they are not members, find out why not. The Association has special standards for members who provide consulting and other services, although these are not as stringent as in some countries - eg, the UK.
- Check to see whether the consultant has experience of franchising more than one type of business. 'Franchising' is an all-embracing term that covers many different types of business, and a franchise structure that suits, say, a lawnmowing business may be completely different from what is appropriate to a cafe business, a vending business or a hotel or beauty business. Read Structuring a franchise system You want to be certain that your consultant knows about all the possible different structures and will be able to advise on what best suits your particular business.
There are no legal requirements in New Zealand for consultants to be registered or have any formal qualifications. The onus is therefore upon the clients to satisfy themselves that their chosen consultant really does have the skills, experience, ability and integrity to provide the services for which they are being paid. Once you are locked into a contract, it may be too late to realise that the consultant is no good. So:
- Obtain a detailed written proposal for work which sets out what work will be done, when, how much it will cost, a time frame for completion and when payments are required.
- Obtain more than one price and proposal and understand the differences between each. The elements and principles of franchising do not differ much between businesses. It is the type and complexity of different businesses which create the differences in the work required. Cheapest is also not always best.
- Avoid large upfront payments and deals which do not provide the opportunity for termination as a result of non-performance or sub-standard performance. Payments should be structured more or less to coincide with work done.
- Be wary of deals with small fees but requiring success payments upon the sale of franchises. You are engaging a professional advisor, not an entrepreneur. It's okay to have some element of risk sharing, but deals with a large sales component can create an environment for cutting corners and a less than professional approach to the work of creating an ongoing successful franchise.
- If the consultant asks for a fee or commission upon the sale of individual franchises, they may be breaking the law - see Who can legally sell a franchise?
Franchising your business can be a great way to expand, to gain a competitive advantage, to release capital or meet any number of strategic objectives. But it is not easy, and it's not cheap, so if you want to explore franchising, do it properly - and choose your advisors wisely.