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Buyer Beware: What to Know About the Business of Franchise Portals and Brokers

Prospective franchisees should regard franchise portals and brokers as just one part of the research process when deciding whether to franchise with a brand, franchise legal experts say.

When a prospective business owner begins embarking upon the franchise route and looking into different brands and industries, they have a wide range of information at their fingertips. It’s easy to Google phrases such as “fitness franchise opportunities” and “Seattle franchises” and get a wide variety of results. 

Franchise brokers and franchise portals are two resources that can help a prospective franchisee focus and narrow their search. Franchise brokers are individuals who can act as a sort of recruiter for franchise brands and get paid when the franchisee signs with one of those brands. Franchise portals are websites that group together franchise opportunities in a particular industry or region.

Both franchise brokers and franchise portals can be incredibly useful in the research process, but by no means should they be the only part of the process, according to franchise legal experts. 

“For those who like working with people, franchise brokers can provide a direct line to multiple opportunities and help place prospects with those that make the most sense to their needs,” Drumm Law founder Mike Drumm said in an email. “For those that prefer doing research on their own, portals can provide a wealth of information and help match franchisees to an opportunity that fits their business strengths and interests. Just be careful to not limit yourself to what you hear and read through them.”

The main thing a prospective franchisee needs to understand about franchise brokers is that franchise brokers get paid a commission once a prospective franchisee has signed on with a brand. 

“First and foremost, they need to understand who’s paying the broker’s fee—the franchisor—so although the broker is trying to match the candidate to a franchise that’s going to be a good fit for them, [the prospective franchisee has] to recognize that the broker has a horse in the race,” Spadea Lignana LLC founding partner Tom Spadea said. “They want to see a deal get done. The candidate should be just very aware that the broker only gets compensated if a deal gets done.” 

Franchise brokers do a good job of matching people to a franchise, but when someone is deciding whether to use a franchise broker, they have to recognize that the broker will most likely point them towards some deal, even if it’s not a strong fit, Spadea said. 

“The candidate has to make an independent judgment of whether or not they’re a good candidate for franchising, which is the first-level decision,” Spadea said. “Not everybody should be a franchisee, quite frankly.” 

Drumm echoed this, and recommended prospective franchisees take a franchise broker’s guidance with a grain of salt. 

“The broker is likely getting paid by franchisors to market and find leads for their brands,” Drumm wrote. “As a result, their role is effectively the same as a salesperson. You need to realize that the broker often has their own interests in mind (getting paid a commission) and that they are not often independent or always representing your best interests.”

Prospective franchisees working with franchise brokers should also research the franchise broker’s organization, professional experience and recent placement success, Spadea said. 

“How long have they been in the industry? What do they really know about franchising? Do they have experience? How many successful placements have they made over the last couple of years?” Spadea said. 

Like franchise brokers, franchise portals should be approached with caution and viewed as just one factor in the overall research process. 

“I think portals are not the end-all, be-all, but I think they can give you a pretty good cross-reference of all the different opportunities that are out there,” Spadea said. “There are thousands of franchise opportunities and it’s not feasible to search through all of them.”  

Drumm noted that franchisors often pay to advertise on portals or get paid when a franchise lead is found through them. 

“As a result, much like working with a broker, the portal probably has the franchisor’s best interests in mind and not your own,” Drumm said. “They are interested in generating clicks and leading you to one or more franchisors. Just because what looks like a great opportunity is listed on a portal does not mean a similar or even better opportunity in the same industry can’t be found. You just have to put in the work upfront.”     

Ultimately, prospective franchisees need to own the research process and not rely on one avenue for researching franchise opportunities. Spadea and Drumm recommend speaking with other parties who can be helpful in the decision-making process, including family and friends, other business owners with franchise experience, consultants and, of course, franchise attorneys, all of whom will have the prospective franchisees best interests in mind. 

“I think we, as human beings, have a tendency to rely on information that we’re told by so-called ‘experts’ and I think that anyone who is exploring a franchise opportunity does that at their own peril,” Spadea said. “They need to spend the time and energy to really evaluate a franchise that they want to invest their time, money, energy and ego in.”