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The Pros and Cons of Working With a Franchise Broker
Franchise brokers can help guide prospective franchisees through the discovery process, but sometimes at a cost.
Anyone exploring franchise opportunities has most likely heard of, or considered working with, a franchise broker. And with over 3,000 franchise brands currently recognized by the International Franchise Association, franchising is a dynamic and diverse industry that some people need help to navigate. But how do franchise brokers guide prospects through the franchise research journey, and is it worth the time, effort and cost?
What Is a Franchise Broker?
The current landscape can make it difficult for prospects to know which brand they should be investing their capital in, creating the need for an industry expert to serve as a guide in many a prospect’s searches. This role is filled by franchise brokers, intermediaries who function as a matchmaker of sorts for franchisors and franchisees.
Essentially, brokers are experts on franchise opportunities in the marketplace and are able to tailor a potential franchisee’s options based on their interests and values. To do so, brokers assess prospects’ interests, skills and goals to find the best fit for both the prospect and the franchisor.
“I love when a client says to me, ‘Wow, you really do understand me!’” said Megan Allen, franchise consultant and FranNet franchisee. “My goal is to always listen and analyze their needs, go through the opportunities, call development groups and maybe sometimes even talk to the brand’s founder.”
Why Should You Work With a Franchise Broker?
Franchise brokers make the overall experience of looking for a brand to franchise with less daunting. Googling “franchise opportunities” will give you hundreds of results, which can be overwhelming.
“A franchise broker helps you pinpoint the one that’s right for you,” said Corey Elias, founder of Atlanta-based Franchise Captain franchise brokerage. “And brokers have access to funding resources, franchise attorneys, accountant introductions and tools to look at the backend health of a franchise system.”
Their services are also helpful for the franchisor, as they can filter out any buyers who are simply browsing, not serious about their investment or not qualified to make one. Franchisors also need to be selective when looking for a franchise broker. Brokers are representing the brand to a potential buying audience, and brokers will likely be just as selective when choosing brands to work with.
What Are the Disadvantages of Working With a Franchise Broker?
There are also a few cons, however, when it comes to using a broker. Because they don’t charge franchisees for their services, they do earn a percentage of the franchise fee when a franchisor makes a sale. This, in some cases, causes signing fees to become inflated, and in turn, cost potential franchisees more money than they bargained for. Franchise brokers’ commissions vary, but typically they are paid up to 50% of an initial franchise fee that could range between $30,000 and $50,000. In other cases, franchise brokers are paid a flat rate.
And while filtering brands may be helpful for some franchisees, for others, it can leave out options that they may have explored further in their own research because of the financial incentive brokers have to put forth for particular brands as options over others.
The most important thing to look for in a franchise broker is whether or not they have your best interest at heart. You can determine this by interviewing several brokers and doing your own research.
“Find past clients and see if the broker helped them find the right opportunity,” said Kay Ainsley, managing director of MSA Worldwide, a franchise advisory that helps franchisors expand. “Is this someone that is part of a brokerage network? Somebody who has been around for a long time? Or is this somebody who is an out-of-work salesperson that is doing this until they find another job?”
All in all, working with a franchise broker has its perks, but it also has some drawbacks. Making sure to do thorough research on brokers and brands is crucial in ensuring you’re making the right choice for yourself and for the brand.
Read more about working with franchise brokers below:
