Franchise brokers: Who are they, and do you need one?
The best travel agents ask a lot of questions of their clients before planning a trip. The more they know, the more they can match the right experience to the client. Good franchise brokers are the same way. Their job is to learn all they can about a franchise candidate and then match that candidate to a franchise, based on their deep knowledge of the vast franchise landscape.
Sometimes called “business coaches,” “advisors,” “referral sources” or “franchise consultants,” franchise brokers can be an invaluable asset when hacking through the franchise jungle. According to Linda Menter, vice president of business development at FranChoice, a franchise consultancy, it’s about minimizing risk and saving time.
“There are more than 3,000 franchises out there to consider,” Menter said. “The broker’s role is to help screen through the opportunities, narrow down the choices and help the candidates avoid mistakes that come when a prospective franchisee falls in love with a widget.”
Falling for a certain franchise concept isn’t necessarily a mistake, but it can blind the prospective franchisee to key questions he should be asking. Often, the broker is there to help protect the franchisee from himself.
“That widget the candidate falls in love with might be good or it might not,” Menter said. “A good broker will help guide you to study the business, the ownership and study yourself to make sure it is a good fit.”
Buying a franchise: How do brokers match you up?
Like any investment, buying a franchise business carries risk. Using a franchise broker does not remove all the risk, but it can help minimize it. However, it is important for someone buying a franchise to be as diligent about the broker he works with as he is about exploring franchise opportunities. There are brokers out there who will represent any franchisor willing to pay them a commission for a sale.
“Unfortunately, there are no barriers to entry in becoming a broker,” Menter said. “Anyone can hang out a shingle, and there are some bad apples out there. A candidate really must investigate a broker’s experience in franchising and in business. Check their references.” Once you’ve completed your due diligence and you connect with a franchise broker whose experience and reputation checks out, the information gathering process begins.
“It’s exhaustive, to say the least,” Menter said. “We spend hours and hours before we even think about suggesting a franchise. We want to know goals, motivations. We want them to understand the pros and cons of franchise ownership. How committed are they to devoting their lives to the business? Are they good managers? Do they work well with employees? All of these things help us match their characteristics to the characteristics of the franchise.”
Who pays the broker for all of this work?
Those buying a franchise business do not pay the franchise brokers. Franchisors do, viewing brokers as a marketing expense in order to get qualified candidates.
Part of your due diligence in choosing a broker should include understanding how the broker gets paid. Some get a flat rate regardless of the price of the franchise they sell. Others earn a commission based on the cost of the franchise, an arrangement that could motivate a broker to suggest more expensive franchises to candidates. It’s your obligation as a candidate to sniff out a broker’s intentions.
It’s worth noting that a broker who brings franchisors unqualified leads or candidates who are not a good match will not last long as a broker. “We are valued by franchisors for one thing—because we introduce them to qualified candidates,” Menter said.
By that measure, a franchise broker with an established record and a long history is a fairly sure bet.
Pros and cons of working with a broker.
Time savings is one of the best reasons to use a broker. There are literally hundreds of thousands of pages of information and data to wade through if you were to dutifully examine all the franchise choices out there. A broker cuts through the clutter to point you in the direction of the handful of opportunities that could be a good fit.
Money savings can be substantial if a broker steers you away from a franchise concept that would have been a disastrous match. That alone can be a compelling reason to use a broker for some candidates. Those who are completely new to franchising are also typically grateful to have the broker’s expertise in their corner.
Ratios of success must also be considered as a positive attribute of using a proven franchise broker. “As a franchise consultant, naturally I feel we are very successful,” Menter said. “But truthfully it is a complicated dance, and there are no objective measurements. However, when we speak with the franchisors with whom we work, it’s common for them to tell us the franchise candidates we bring to them usually end up being their rookies of the year.”
The greatest “con” of using a broker, as Menter pointed out earlier, is the absence of a barrier to entry. You have to be alert to avoid the unscrupulous actors whose only motivation is to collect the commission on the sale. Verify their credentials, scrutinize their track record. And even if you are certain you have a great broker, don’t rely solely on the information he or she supplies. Check and double check sources, earnings claims, and talk to existing franchisees. Additionally, your accountant, your attorney and trusted family and associates should review all documents.
So what’s the takeaway? Don’t settle.
Buying a business is a huge decision and typically filled with emotion and stress. A franchise broker can be a beneficial ally in easing the indecision and anxiety and helping guide you to your ideal fit.
“It is quite common for candidates to look at franchise companies and see a lot that they like and see things they don’t, and they feel they have to settle,” Menter said. “However, if you have done your due diligence and have a clear vision of what it is you want, you should not have to settle. A good, solid franchise broker will eventually bring the perfect match to you.”
Find a franchise broker to help you get started today.