I Want to Franchise but Am Being Asked to Give Away Equity

So you are trying to figure out how to franchise your business and you get BOMBARDED with all kinds of weird proposals. Over the years some strange companies have popped onto the scene. Most of them are franchise brokers (basically sales agents) who are not doing so well selling franchises, so they figure they can offer franchise development services as a “sloppy second”.  Others are solo franchise companies who have experienced some success in franchising their own business (mostly in selling franchises) and are now looking for ways to grow their own portfolio to incorporate other businesses (like your business) into their system to make them look more powerful and yes they are now claiming to be experts in franchise development.  In fact their websites and marketing collateral are so deceptive because the pictures these solo franchise companies flash of their “team” to insinuate  the size of their franchise development department are actually pictures of their franchisees attending a franchise meeting.  

It gets better, these companies are saying that it is necessary that you GIVE them equity of your business (part ownership of your business because they will “partner” with you) in order to franchise your business. That means a percentage of your franchise business revenue that you make each time you sell a franchise and EVERY MONTH thereafter, goes to them (in most cases after already paying them a fee) …just because they helped you! But that’s not all folks…..nope once they have you, they will also require that their team sell your franchises. So in addition to the equity you already agreed to give them, they also expect to get a large commission from you each time a new franchisee comes onboard.  May take a while for you to figure this all out because these things are cleverly camouflaged and they are good sales people.  You really need to peel back the onion and pay attention to uncover the truth.

Giving away equity (making them a partner in your business), now that’s crazy and not right! It’s like having a general contractor ask for a percentage of equity in the house that was built for you. This makes no sense. As the franchisor, you’re supposed to be at the receiving end of all revenues for the deliverables you provide, not giving it away to someone just because they helped you build it! We say: “If someone is asking you to GIVE UP EQUITY, turn around and RUN!”

What’s Going on Here?

These brokers, sales organizations and solo franchise companies (mostly based out of Florida and one even out of Minnesota) who have experienced some success with their own franchise business are now posing as franchise developers.  Basically they are looking for another way to capitalize on the growth of the franchising industry. Ask yourself… “Do these other companies have the depth and range of experience needed to develop a comprehensive franchise program OR are they just proficient in franchise sales”.  You really should know who you are talking with and not get too confused by titles (see our article “What is the Difference Between a Franchise Consultant, Franchise Advisor, Franchise Broker & Franchise Developers”). These brokers, sales organizations and solo franchise companies may be valuable when it comes to franchise sales later but franchise development is a different story.  It is like a real estate agent claiming to be an expert in building a home. I don’t know about you but if I am building a home I want a contractor with a track record of building a safe home rather than a real estate agent who wants to build and sell it for me.  Why would a real estate agent even offer to build your home for you in the first place… simple it’s called greed. In this equation, The Franchise Maker is the contractor we are NOT the real estate agent.  If you wish to tap into the talent of brokers, sales organizations or solo franchise companies later to help you sell franchises, no problem just be aware it comes with a price (see our article “Do I Really Need Someone to Manage My Franchise Sales”).  

The Truth, Plain and Simple

You should know that The Franchise Maker does NOT ask for equity. We DO NOT ask for a percentage of sales or anything silly like that as a residual. In fact, everything we do is a FLAT FEE! It is all laid out up front so there are NO surprises. YES, that includes EVERYTHING: building the franchise structure, defining obligations, the franchise operations manual, document creation, attorney’s fees, CPA’s fees, etc.

At The Franchise Maker, we are passionate about what we do and feel it is part of our duty to safeguard the industry and YOU from some of these outrageous practices. We want you to be aware of what’s out there. Our clients have told us that it was a breath of fresh air when they discovered us: a company that specializes in franchise development only, had knowledgeable answers, that was not out to rip them off, no surprises when it comes to fees and no hidden agendas.

The best advice we can give is to be sure you are asking the right questions when exploring the idea of franchising your business. Ask lots of questions! Dig deep and watch out for smoke and mirrors! We have a list of Questions to Ask, to arm you as you are doing your research. Contact us to get it now!