What to Know Before
Using Franchise Brokers
by Ed Teixeira
Itís estimated that 50% of franchisors utilize franchise brokers to
assist in the sale of their respective franchises. When, properly utilized
franchise brokers can provide a valuable service for individuals looking to
buy a franchise, especially individuals unfamiliar with franchising.
Several franchise broker firms dominate the broker landscape and each can
represent over 200 franchise opportunities. In most cases, brokers receive a
flat fee or a percentage of the franchise fee from the franchisor when the
sale is completed. Individual brokers and broker networks are brokering
franchise sales on behalf of franchisors. The prospect does not pay any
monies to these brokers. The choices that franchise brokers present to
prospects are limited to a select number of franchisors, which pay the
brokers to sell their concept. Some brokers may refer to themselves as
franchise consultants, which may not be totally accurate.
However, even within the franchise broker network there are differences.
Some networks use franchisees or licensees to market in specific
territories, while others use a network of brokers that operate under their
own company name. In this case the broker has more independence and may tend
to follow his or her own process.
There is an exception to these franchise brokers, namely, the true
franchise consultant who is engaged and paid by an individual to locate,
evaluate and recommend a franchise opportunity. These consultants represent
the individual and not specific franchisors and as such receive no
commission or payment from franchisors.
Some Franchise Broker Networks Follows a Process
The more popular and large franchise broker networks typically follow a
- The individual completes a questionnaire that profiles the
prospect and identifies specific personality traits. Included is a
financial profile. The intent is to enable the broker to identify
the right category of franchise for the prospect.
- The next step is usually a personal meeting to identify what
types of businesses the prospect likes and dislikes.
- Since the broker represents specific franchises, the choices
that the franchise broker presents will be limited to the
franchisors they represent, which pay the brokers to sell their
How to Use a Franchise Broker
There are a number of franchise broker companies that provide a valuable
service to individuals who are looking to acquire a franchise. Some key
advice is to know what you want, do your homework and don't exceed your
Here are some tips to follow when using a franchise
- Know the type of franchise you're interested in before
contacting the broker. Since the brokers donít require exclusivity
you can use more than one. A word of caution: If a broker uses high
pressure or requires an exclusive arrangement, avoid them.
- Confirm that youíre dealing with legitimate professionals by
checking biographical data, track records and references
- Do your home work on the subject of franchising before you get
started. There are ample resources available from the International
Franchise Association and other sites on the Internet.
- Keep in mind, that franchise brokers do not represent the entire
universe of franchise opportunities.
- Since franchise brokers represent a number of franchisors and
receive a commission for each transaction some brokers may try to
steer you to a particular franchise opportunity.
- The franchise broker can be a data gathering source for specific
franchise information. Utilize the broker to provide you with key
information pertaining to the franchises that appeal to you. This
can save you valuable time and will serve to measure how
knowledgeable the broker is.
- Be sure to stick to your financial capabilities. Purchasing a
franchise can be somewhat similar to buying a house. Don't exceed
your financial capabilities, because a particular franchise
opportunity dazzles you.
- As with any important decision, you need to perform your own due
diligence. Utilize your attorney and accountant to review the
franchisorís Franchise Disclosure Document (FDD).
- Most importantly, be sure you take to time to speak with current
and former franchisees
Franchise brokers can be a helpful resource for individuals looking to
purchase a franchise. However, itís important to remember the role they play
in the franchise process and how they are paid.
Ed Teixeira is the President of FranchiseKnowHow, LLC. He can be reached