Territory, location, and how to check a franchise broker

The lease is often a longer commitment than the franchise

For any premises-based concept, location does more to determine the outcome than brand choice does. A strong brand in a poor site loses money; an ordinary brand in an excellent site frequently does not.

The lease is also frequently the harder commitment to escape. A ten-year lease with a personal guarantee outlives a franchise agreement you can walk away from, and it is the obligation that most often survives a closure. Read the exit guide alongside this one, because the two decisions are the same decision.

What territory actually means

Item 12 of the disclosure document sets out territory. Read it for what it does not grant. Protection may be limited to a radius, may exclude non-traditional venues such as airports and supermarkets, may exclude the franchisor's own online or delivery channels, and may lapse if you miss development targets.

"Exclusive" and "protected" are not interchangeable terms and neither has a fixed meaning across agreements. The only reliable reading is the clause itself, and it is worth paying a franchise lawyer to read it before you sign rather than after.

Franchise brokers: there is no licence to check

Franchise brokers — often styled consultants, coaches or advisors — match prospective buyers to franchisors. It is worth being clear about what regulates them, because the answer is less than most buyers assume.

There is no federal licence or qualification required to work as a franchise broker in the United States. There is no national register of them, and industry certifications that exist are issued by trade bodies rather than by any regulator. Some states that register franchise offerings also require the people selling them to be registered as franchise sellers or sales agents, so where you are matters. If someone tells you they are "licensed", ask by whom, in which state, and under what statute.

What does apply everywhere is the FTC Franchise Rule: anyone selling a franchise, brokers included, must be identified as a franchise seller in the disclosure document you receive, and the required disclosures must reach you before you pay anything or sign. A broker who is reluctant to appear in the paperwork is a serious warning.

The compensation question, asked plainly

Brokers are, with few exceptions, paid by the franchisor and not by you — typically a commission tied to the franchise fee when a placement closes. That is not disqualifying, and plenty of brokers do useful work. But it does mean the brands you are shown are drawn from the ones that pay, and that a broker has no financial reason to tell you the honest answer is none of them.

Ask directly, in writing, and keep the reply.

• Who pays you, how much, and at what point in the process?
• Which franchisors are you contracted with, and do you show me brands outside that list?
• Are you registered as a franchise seller in my state, and will you appear as one in the disclosure document?
• Give me three buyers you placed more than two years ago, including one whose unit did not go well.
• What did you send me that I did not ask for, and why that brand rather than a competitor?

Check the references properly

References supplied by the broker are selected. That is what a reference is. Their value is not the endorsement but what they let you ask about specifics: dates, territory, what the broker said would happen versus what did.

The better list is the one the broker did not choose. Item 20 of any disclosure document lists current owners and, importantly, those who left the system in the last year. Call some of both. The people who left are hard to reach, rarely quoted in any brochure, and know more about the downside of that system than anybody you will be introduced to.