Should you work with a Franchise Broker?

Many entrepreneurs choose to seek the advice of a franchise broker or consultant.  As with all professionals, not all brokers are created equal.  Some are very experienced, knowledgeable and have a large network of resources that can be greatly beneficial in the process of researching, acquiring and launching your new franchise business.  Before selecting a broker to work with, one would be wise to do some due diligence.

How does the broker or consultant earn money? Do they receive a referral fee from the franchise?  Are they incented to direct you to a particular financial institution?  Do they plan on charging you for their time?  This is very important to establish up front.  In most cases the broker receives a referral fee from the franchise company and there is no charge to the buyer for their services.

Are you obligated to work with them?  Unlike real estate agents, it would be very unusual for you to sign an exclusive agreement with a franchise broker or consultant.

What franchise opportunities does the broker represent?  Some brokers represent a select few franchisors, while others have a large network of franchises they can discuss with you.  Some may also have exclusive agreements that prevent them from representing multiple franchises within a given industry.  For example, they may only represent one Coffee Franchise, but they may work with a number of Beverage Franchises.  An important thing to keep in mind is that the franchise opportunities that are presented to you by a particular broker or consultant will not represent all of the available business opportunities that could fit your interests.

How did the broker decide which franchises to represent?  Not all franchises work with brokers.  This is very important to keep in mind.  For those that do, what makes a broker choose to work with them?  In some cases it can be a more favorable referral fee to the broker.  In some cases it can be the quality of the franchise opportunity or the organization/management that drew the broker to that business.  Also keep in mind that franchises don’t work with all brokers.  There is a due diligence process on that side as well.

Some broker networks also have an ownership interest in the franchises they represent.  If this is the case, it doesn’t mean one would not want to seriously consider that franchise, but they would be wise to understand what motivated the broker to point them in the direction of that opportunity.  Was it a good match, or was more beneficial to the broker?

Ask for references!  When investigating a franchise opportunity a wise buyer will speak with current and previous franchisees.  It is a good idea to do the same with the broker.  Ask to speak with several clients of that broker or consultant.  Speak with some that bought a franchise with their guidance, and speak with some that did not end up buying.

How do they match you with a franchise opportunity?  Are there any psychological tests that they give you?  What kind of background information does the broker require of you?  What factors play into their decision of which franchises they discuss with you?

How much Franchise experience does this broker or consultant have?  In the last several years there has been a huge influx of franchise brokers and consultants.  There are a number of broker networks that offer the franchise opportunity of becoming a broker/consultant.  That’s right; your consultant may themselves be a franchisee.  If they are part of a franchise network, ask to view their Franchise Disclosure Document.  This document will disclose information about any lawsuits that the system may have been involved in.

There are many experienced professionals to choose from.  The decision to purchase a franchise is a very important one.  Let someone else use a broker with little to no experience.