The Ethical Franchise Broker: How to Calculate Franchise Turnover

Sean,
There are few, if any, franchise broker organizations that research, review, and perhaps even understand the FDD's and subsequent franchise agreements within. In fact, many are instructed to avoid reviewing the FDD with the exception of explaining what it's designed to do. More over, take an organization like the International Franchise Association. To become a member franchisor all one has to do is send in the fee and an FDD. Surely you realized, and have realized for some time, that these are not "approved and read" by anyone in nearly any organization.

With over 300+ new franchisors per year entering the playing field you'll find few brokers who bother to even understand the full length and breadth of the nature of their business let alone understanding the FDD. Accordingly, you have those like VettedBiz and Franchise Reality Check as well as youself helping those potential Franchise Investors with some of the facts necessary while they acquire information or that which is referred to as "Due Diligence". In our roles as Franchisee advocates we find that nearly all Franchisees who are in trouble made the decisions to invest in a franchise with their hearts and not their heads. Of course, pushy brokers don't help the cause when they are nothing but commission driven.

To summarize, as with any business for hire you'll find both the good and the bad persons associated with it. In the business of franchise brokerage I can unequivocally state that most are unqualified, poorly trained, and fail to meet the necessary criteria to do it properly or ethically. Some will even claim that the CFE (Certified Franchise Executive) by the International Franchise Association is the "Gold Standard" as if it were a license of some sort. It is not. When and if you find a broker who is ethical and puts the time in for you be sure to make that person(s) a keeper. He or she would be just as comfortable telling you to walk away rather than lead you into the very dark, very nasty abyss.

As we sit by watching these franchisors implode you can be sure that somewhere along the line there was a broker who was entirely complicit in the transaction as well as the International Franchise Association who said and did nothing to stop it. It's the nature of the business and has been so for decade after decade. I've long been an advocate for brokers to be licensed, bonded, insured and associated with organizations that do such licensing however none currently exist. In a perfect world you'd have FINRA type licensing just as with the sale of securities or, at the very least, similar requirements and licensing as those licensed in Real Estate. Let's not forget as well that you have those that aren't brokers but will "guide" you through the process for a fee. Frankly, I find that equally as bad as bad brokers. If you're going to advocate on behalf of potentional Franchisees simply advocate, don't sell your ability to assist.

That's it for me. As is always the case feel free to contact me or discuss any of what I've written here or on the past and I'd be happy to speak with you. It's unfortunately a never ending saga and could NEVER be condensed into a post.

Keep up the fine work. Intestingly enough I'm guessing 8 out of ten brokers don't even know what "churn" is, how to measure it, or the work arounds used by unscrupulous franchisors and the organizations that may represent them. You've done a service by explaining it here.

With Sincerest Regards and appreciation as always.

Kim