What Franchisors Should Expect When Signing with a Franchise Broker

One of the persistent challenges facing franchisors is finding and attracting the best franchisee candidates. Franchise brands implement any number of tools and strategies to recruit qualified and like-minded investors. One of the most popular methods is partnering with a franchise broker.

Franchise brokers are the matchmakers of the franchise industry, seeking out qualified franchisee leads and introducing them to their roster of franchisors. For any franchise brand looking to grow its system, and particularly for emerging franchisors who want to increase their exposure, franchise brokers can provide a dramatic development boost.

Still, some franchisors don’t know what to expect from a broker or how to approach the relationship. 1851Franchise.com caught up with Karen Cady, Vice President of Operations at FranNet, to learn about what franchisors can expect when joining their network.

The first step for any interested franchisor, says Cady, is to reach out to the broker and have a discussion about how and where they want the brand to grow. Some franchises are looking to grow nationally across the U.S. or Canada, while others are focused on targeting specific markets or even phasing out of certain markets.

Next, the franchisor fills out an online evaluation form that includes all the franchise’s basic information, including industry, total investment, required liquid assets, years in business, franchising fees and total number of locations. Further down the form, questions become more detailed, asking for an explanation of any closures in the past three years, a description of the brand’s franchisee training process, the number of sold locations that are not open and a number of questions to determine if the franchisor has the financial resources required to support their plans for growth.

“If they want to go national, the evaluation goes to an inventory committee made up of five to six of our top consultants,” said Cady. “They review the evaluation and Franchise Disclosure Document. After the committee reviews those items, they’ll ask any questions that weren't covered and share any concerns.”

The next step is similar to when a franchisee prospect is looking at joining a franchise system. FranNet will complete validation by asking for a list of franchisees and randomly selecting a few of the top, middle and low performers. The goal is to tap directly into the source and find out what's going on in the system. This, says Cady, is a make-or-break step in the process. “If the validation isn't good, we tell the franchisor there are a few things they need to work on and to come back later,” said Cady.

Because there is a fee to work with FranNet (varying from $3,000 a year to $10,000 a year depending on the brand’s development goals), Cady says they don't work with any franchise for whom they can’t take substantial and immediate action. “It doesn’t make sense for a franchisor to pay us and then just sit around,” she said.

Cady also notes that for any brand looking to work with FranNet on a regional (rather than national) basis, they’ll take their strategy directly to the regions where franchisor wants to grow and connect with local consultants to get feedback.

While FranNet accepts applications from any and every type of franchise, Cady says the broker is particularly interested in a certain model. FranNet usually looks to work with semi-absentee concepts with an option to make a six-figure income, and Cady said there are some industries FranNet is backing away from, like those with inherently limited inventories.

Franchise brands that work with FranNet are invited to two meetings a year at additional costs, and when consultants successfully place a franchisee, they receive commission that varies depending on the concept.

One franchise brand that has been using FranNet for years is Right at Home*. The brand’s chief development officer, Eric Little, says Right at Home has found continuing success working with FranNet, but he cautions franchisors to make sure they understand the type of candidate they want to bring into their system before settling on a development strategy.

“I think there are a lot of benefits [to working with a broker], but it’s important to make sure the franchise broker understands exactly who you’re looking for,” said Little. “If you do a good job training the broker on what and who you’re looking for, nearly every lead that comes in will be a qualified candidate.”

According to Little, the value of working with a franchise broker boils down to a low-cost exposure to a wide field of franchisee candidates. Because brokers work on commission, they can often be a cost-saving alternative to building out an in-house development team.

“The benefit for the franchisor is that they get access to good franchise talent without having to bring them on as employees at a fixed cost, said Little. “It allows them to manage cash flow, and it gives them access to candidates they probably wouldn’t have been able to afford otherwise.”