Choosing a franchise to buy can be nerve-wracking, especially for brand new franchise owners. The spectrum of franchise opportunities available can be overwhelming, from a home care assistance franchise to a fast food brand. Even if you narrow down to a specific industry, it can be difficult to feel confident in your choices.
For many potential franchise owners, this glut of options leads them to hire a franchise broker, or franchise consultant. Brokers can be a good option in many cases, but like most business decisions, they have pros and cons.
Learn more about working with a franchise broker and determine if it makes sense for you.
What Is a Franchise Broker?
Franchise brokers may go by all sorts of different titles: franchise consultant, advisor, business coach, etc. However, these individuals all help match potential franchise owners with the right franchisor. They work alongside potential business owners to determine budgets, professional goals, and other constraints. Then, they present the best franchise options for that individual.
It’s worth noting that as a prospective franchisee, you do not pay the broker. Instead, they are paid a fee by he franchisor if you sign on as an owner with them. So, you can enjoy the experience and expertise of a broker without having to worry about cost.
Pros of Working with a Broker
Many franchise owners worked with franchise brokers when they were buying a franchise, but not all find them to be necessary. Here are some of the reasons you may want to consider enlisting a franchise broker, especially for your first franchise purchase.
Expertise
There’s a lot of legal paperwork that goes into a buying a franchise. A franchise disclosure document (FDD) alone can be many pages long and difficult to parse unless you are an attorney. Combined with all the other information you can find on the franchises that interest you, that is a mountain of materials.
With their business experience, franchise brokers know how to navigate all of that information. They know what is important and can help guide you to the right information. Ultimately, this saves you a lot of time and a lot of headaches. Plus, a broker has worked with many franchisors and may be able to offer unique insight through the selection process.
No Cost to You
Reputable franchise brokers work on a commission basis. The franchisor pays them that commission when you sign on the dotted line. You should have no out of pocket expenses when you hire a franchise broker, which is certainly an upside.
But you should know that these fees can vary in the franchise industry. And the commission can turn into a con, which we will discuss in the next section.
Streamlined Process
Researching franchises takes a lot of time. Because franchise brokers have a good deal of experience, they can help you narrow down your choices quickly and efficiently. They can help you narrow down your choices to a few potential franchise brands so you can make a decision faster.
Additionally, franchise brokers are very familiar with the franchise sales process. So, they can answer any questions you might have and get the ball rolling with successful franchises quickly.
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Cons of Working with a Franchise Broker
Of course, there are also downsides to working with a franchise broker. Some of these potential hazards include the following.
Limited Franchise Options
Franchises do not directly employ franchise brokers, but brokers work with a certain portfolio of franchisors. There may be a brand that you are interested in that a broker cannot sell. Ultimately, working with a broker could limit your franchise options since many brands don’t work with outside consultants. They may try and persuade you to look at a franchise in their portfolio, even if it is not the best match for you.
Bias
Although the commission-based system can be good for you, it can be an issue if your broker is unscrupulous. The commission fee can be enough for some brokers to try to steer you towards a more expensive franchise to up their cut of the sale. Ultimately, a broker could look out for their own interest instead of your own.
Pushy Tactics
Depending on the individual that you work with, a consultant might come off like a used car salesman. No potential franchisee wants to be rushed into making a decision, especially when it requires a large initial investment.
Franchise brokers may also make more money if they can upsell you on a multi-unit agreement as well. So, you may feel pressured to look into multiple territories.
Choosing the Right Broker
If you decide that a franchise broker is the right choice for you, we recommend going through a trusted network, like IFA, IFPG or FranServe. These networks often vet their franchise consultants. Some may even place a fixed commission fee so that brokers aren’t influenced by the money.
Ultimately, you should interview the broker and see if their personality is the right fit for you. Ask about their experience to see if they primarily focus on certain industries. You can also ask them for references and talk to franchisees they worked with in the past.
Whether you work with a franchise broker is a personal choice, but it is important to understand how the decision you make can impact your ultimate franchise purchase.
