How Do Franchise Brokers Work?

By Kerry CroccoJanuary 17, 2020

Franchise ownership is more than purchasing a business. It is a lifestyle that you create so you can work for yourself and be independent. In many cases, it is like having another child because of the time, care and effort you put into your business. But, this type of investment comes with great support.

You may have heard about franchise brokers (also often called franchise consultants), but you don’t have a good grasp of who they are and what they do.  When a company wants to franchise, they may contract with a franchise brokerage firm to help promote their franchise opportunity to prospective buyers like you. The company is hired by the franchisor and sells the franchise on behalf of the franchisor. In turn, franchise brokers provide you with the information you need to help you find the right franchise for you which are limited to those franchise businesses that have contracted with the brokerage firm.

franchise broker

How do franchise brokers make money?

1. Commissions on New Franchises Sold                       

Franchise brokers are paid in the form of commission each time a franchise is sold to a prospective buyer that they refer to the franchisor. However, the amount they collect does not affect the amount you pay for the franchise.  The commission is based on a percentage of the franchise fee you pay when you sign a franchise agreement.

How they work

Some brokers are very knowledgeable and provide essential information on franchising to help you effectively navigate the process of identifying the right franchise for you, availing you of lender relationships for any financing needs, and working through the actual buying process.

A franchise brokerage company will advertise on lead generation websites because they have many opportunities available. These sites may provide general information about the franchise and the franchisor. Potential franchise owners can review available opportunities without having to engage, at least early on, one or more franchise development representatives.

Franchise broker networks run many of these franchise websites. This means they can provide accurate information about the franchise. Keep in mind, the broker works for a franchisor, and the franchise doesn’t belong to them. But, it also reduces your chances of running into a disreputable opportunity.

The process of using a franchise broker usually includes scheduling a time to discuss your goals. After an initial consultation, the broker takes the information you've provided them and presents you with your options. They base the recommended franchises on your interests, skills, budget, and target market.

Pros and cons of a franchise broker

Pros

1. A good broker will save you a lot of time and energy retrieving the right information.

Using their tools and knowledge, brokers can help you weed through information faster and asses the alternatives available to you. They are focused on matching you with the right concepts, not just selling you the franchise.

2. They can save you a lot of money.

The broker services are free and can help you avoid making an expensive mistake by choosing a franchise based on the product or service alone.

3. They are accommodating for newcomers in the franchise industry.

If you are not aware of what is available in the market, a franchise broker is the go-to professional. They will tell you about alternatives and help you choose the franchise that matches your criteria.

Cons

1. Failure to consider your best interest.

Brokers get paid when you sign the franchise agreement and pay the franchise fee. So, brokers do have a financial incentive to offer you specific opportunities. Some brokers may end up selling you the most expensive options and fail to consider your interest for their gain.

2. Dealing with a non-legitimate broker.

Every day, it seems, there are more self-proclaimed franchise experts or consultants offering to help you find the right franchise. Be sure you are dealing with a legitimate broker by checking biographical data, track records, and references – for both the individual broker and also the associated brokerage company.

Making sure you have the right information before you engage in any long term and financial agreement is the first step towards achieving success. For more information about franchises and brokers, read these two Franchise.com blog posts:

  1. Is a Franchise Broker for You?
  2. Top 10 Biggest Franchising Myths

Reference links
https://business-law.freeadvice.com/business-law/franchise_law/franchise_business.htm
https://www.entrepreneur.com/article/185010
http://www.franchise-chat.com/resources/the_franchise_brokerage_industry_may_be_changing.htm
https://tworldfranchise.com/blog/3-facts-franchise-brokerage-industry/

About the Author - Kerry Crocco

Marketing Coordinator for Franchise Solutions and Franchise.com; conduct email marketing campaigns, web page management and trade show coordination. Mother of two, wife and Young Living Essential Oils representative.
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