Owning a franchise can be an advantageous and lucrative business experience. But, as is the case with any entrepreneurial venture, having the proper knowledge is essential. To succeed in franchising, you’ll need to get as many details as possible about each potential franchise.
To any new investor, this may seem like a daunting task. Fortunately, there are people to help you; franchise brokers. But, what does a franchise broker do? How much does it cost to hire one? Are there any risks involved? We’re here to help answer those questions.
Responsibilities of a Franchise Broker
Essentially, franchise brokers are salespeople hired by companies to advertise and sell their businesses to qualified investors as quickly and efficiently as possible. If you’re a new franchise buyer, consulting a broker is a logical place to start. Franchise brokers can provide you with invaluable knowledge of business trends, franchise compatibility, as well as the actual sales process.
Franchise brokers work on commission and are only paid after a sale goes through. Typically, they will earn 40-50 percent of the franchise fee (the price an investor pays for the rights to use a company’s products, brand, and intellectual property).
Even though their income will depend on finalizing a contract, a good franchise broker shouldn’t come across as biased. It’s their responsibility to look out for the best interests of the franchisor and the prospective buyer. Brokers should do everything in their power to make their clients feel comfortable and secure with their potential investments.
Why Should You Use a Franchise Broker?
With thousands of companies looking to franchise their business, pinpointing the perfect franchise opportunity can be like finding a needle in a haystack, especially for new investors. These cases are where franchise brokers will come into play.
Since a single broker may represent dozens of different businesses and corporations at a time, they can be an incredible asset in helping you narrow down your search for the right franchisor, saving you a lot of time, energy, and money.
When you hire a franchise broker, they will first spend some time getting to know your business history, qualifications, and budget. Then, they will combine these details with their extensive knowledge of sales trends, financial performance, and market competition to find franchisors that they believe will best suit your goals and financial interests. They’ll also provide you with insight into the exact requirements of the franchisor and any “fine-print” details or disclaimers that you would have likely missed without their assistance.
Risks When Using a Franchise Broker
For the most part, working with a franchise brokerage is a safe and reliable method of finding a business to invest in. However, caution is needed when deciding whether to sign a contract with a franchisor or not.
As mentioned above, in a perfect world, a good broker should be fair and unbiased when giving investment advice. But in the end, their ultimate goal is to make a sale, which means that they might pressure you to sign the dotted line, even if you are not 100 percent compatible with a business.
Additionally, because brokers only get paid when a sale is final, you’re free to walk away at any time with all of the information they’ve provided you, free of charge. With this in mind, some brokers might try to “sweet-talk” you into closing the deal by minimizing potential red flags or undesirable aspects of a franchise agreement.
When consulting a broker network, it’s important to remember that the decision of whether to invest or not is yours, not theirs. Since they are the professionals, following their advice may seem like the best option, but unfortunately, this isn’t always the case. Usually, if a deal sounds too good to be true, it probably is. Always take franchising advice with a grain of salt and never be afraid to get a second opinion.
What is the Difference Between a Franchise Broker and a Consultant?
One of the first things a person learns when researching how to become a franchise broker is that the term “consultant” often gives a more dignified appeal from a marketing aspect. For this reason, many brokers have decided to adopt the title, so make sure you do your research beforehand to ensure you receive the type of service you’re expecting.
Often, the terms franchise broker and franchise consultant are used interchangeably. However, they are not the same thing. While both professions provide direction on investing in a business franchise, they differ in how they go about giving advice and in the overall motivation for doing so.
Unlike a broker, a true franchise consultant will focus solely on the interests of the prospective franchisee, doing the due diligence and helping to guide them to a business that will best suit their budget and goals. Consultants also differ from brokers in that they typically work on a fee-for-service basis, giving them no reason to pressure you into signing a contract.
Committing to franchise ownership is a potentially life-changing decision, so you certainly want to make sure that you invest your hard-earned money into the right franchise. While narrowing down your search can be challenging, to say the least, you don’t have to do it alone. A qualified broker can eliminate much of the confusion involved in buying a franchise.