Franchise Prospector » Research & Buying
Are There Risks Using an Online Broker?
Researching Franchise Opportunities
Thanks to the increasing prevalence of the Internet in everyday life, many individual investors are running into a wide array of franchise opportunities on line. Yet before just clicking on that ad for an attractive franchise opportunity, there are a few things worth considering about what the web has to offer.
Undeniably, the Internet is a wonderful place for finding out about how to buy a franchise. One can access company sites of major - and minor - franchisors in order to learn a great deal about the many possibilities out there for the eager entrepreneur interested in establishing a small business through the franchise market. In addition, there are even more advertisements for franchises that enable franchisors - as well as brokers - to show off what they are offering.
It is important, however, to be extremely careful before enlisting the services of an on-line broker, and here's why:
First of all, the difference between the website of an on-line broker and a simple referral site is the source of revenue that each one pulls in. Indeed, while the referral sites generate income by simple existing as a relatively non-intrusive forum through which potential franchisees can browse and see what has to be offered by the franchising companies - who pay to advertise there - the broker sites will direct on-line visitors to an aggressive (although probably quite friendly) broker whose paycheck depends on whether or not he or she sells the franchise. That's right; on-line brokers are paid on commission, a feature which already places one strike against them.
The second strike is called against the system of on-line brokering due to the fact that these agents work for only a small fraction of the entire franchise market. While at any given time there is a vast selection of opportunity available to savvy entrepreneurs who wish to achieve a great rate of return on their investments, the on-line broker has absolutely no interest in delivering his or her clients to the greater market availability. Indeed, why would a broker offer an option to a client through that his or her commission would be lost? Unfortunately, the existing system of listings for the sale of franchise opportunities does not require that every opportunity be made public. In fact, listings of franchises owned by multiple, competing corporations do not exist in the same way that, say, real estate listings do. Therefore, it should be hard to not doubt the cynicism behind even the most friendly and helpful on-line franchise broker.
Interestingly, however, many first time buyers of franchises often find themselves drawn into the inevitable high pressure sale with the lingering conception that the brokers are somehow working for them. Of course, nothing could be further from the truth, and regrettably this is where many first time investors go wrong. Yet fortunately for the savvy investor, there are a few helpful - and simple techniques that can be employed in order to develop a clear sense of exactly who one is dealing with - the on-line broker or the franchisor company itself.
One of these techniques involves simply verifying the origin of an on-line franchise sales site. It should be mentioned that it is preferable to be dealing with the actual franchisor. That's because, by eliminating the middleman aspect of brokering, one can not only avoid getting caught up with a potentially manipulative on-line broker. Indeed, he or she can enter into relatively unfettered company research when dealing directly with the franchisor. Yet for many - even experienced Internet users - finding out what kind of website one is visiting may at first be hard to do. That's because on-line brokers often like to disguise the fact that they are not part of the actual company, but only working for it.
In order to get past this, one would be well advised to directly inquire as to whom one is dealing with. This query can be made at the time that the franchisor agent (whether a direct representative of the company or a broker) gets back to the individual investor. On top of this, another useful place to look is on the UFOC -a government required informational packet handed out early in the franchise sales process. Look on item 2 to find out whether or the company is using a broker.
While not all on-line brokers are dishonest, it is often not worth the risk of finding out how trustworthy a broker is - too late. When bypassing brokers, entrepreneurs tend to make much better choices with this important and often-one-time investment.
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