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What is a Franchise Broker?

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Updated: Tuesday, July 17, 2012 - 08:20
Created: Thursday, January 5, 2012 - 09:31

I’m deeply entrenched in the franchise industry. Like most industries, we have our own collection of buzzwords or jargon. There are words and phrases we use on a daily basis. But you don’t.

For example, industry insiders don’t say, “Franchise Disclosure Document*” when we refer to a legal document that’s required to be sent to all serious franchise buyers. We call it the “FDD.”

This got me thinking about two pretty common words that we franchise industry types use an awful lot when we’re discussing things like new franchise unit sales, and lead acquisition. The words are “franchise brokers.”

I know what they are, but do you?

Franchise brokers match people that are looking into becoming franchise owners with franchise opportunities that seem like they’d be a good fit. Think of them as “matchmakers.’’ 

 

How Brokers Work

I used to be a franchise broker. Sometimes known as a “franchise consultant,” I received my income from the franchise companies (franchisors).

When I was a broker, I could choose from any one of the 150 or so franchise businesses that were in my portfolio.

A lot of the people that I worked came to me through outplacement offices. (People that have lost their jobs sometimes get a few months of assistance from career counselors that are located at outplacement offices.) Other ways that I’d find prospective franchise owners would be from public seminars that I would occasionally present at, advertising, and referrals.  

When I found someone who was interested in possibly pursuing franchise ownership, I’d schedule an introductory phone conversation in which I would ask some basic questions about their goals, their current financial situation, and other pertinent information.

If I felt that they were pretty serious and financially qualified, I’d have them fill out a fairly lengthy questionnaire and schedule a time for us to meet. (Meetings would be face to face or via telephone.)

During this meeting, I’d attempt to come up with two or three franchise concepts from my portfolio of franchises that I felt may be a good fit. I would describe the opportunity, and if there was enough interest, I’d contact the franchisor and make the introduction.

From that point, I’d be there as a guide and answer any questions that my candidate had during the franchise discovery and research process, giving tips when appropriate. I’d also try to assist them with introductions to franchise lawyers, accounts, and even lenders as they got closer to making a decision on one of the franchises that I had presented.

If my candidate ended up buying a franchise in my portfolio, I would get paid a commission by that franchisor.  (Payment would come soon after the actual franchise contract was signed and the franchise fee was paid.) The commissions were quite generous and that’s why, for the most part, my matchmaking services were free. 

 

Types of Franchise Brokers

My brokerage career started when I joined my late father’s firm, which was part of a national franchise brokerage franchise. There are several national brokerages today and if you choose to work with a broker, he or she may be part of one.

Other types of brokers you may run across are independent, or brokers that serve in a dual-role; they’re business brokers and franchise brokers. (Business brokers generally sell existing businesses-both franchise and non-franchise.)

Before you work with a franchise broker, you need to learn about their background, and ask them lots of questions*. 

 

To help you decide if working with a franchise broker could be right for you, I’d like you to read the Federal Trade Commission’s Consumer Guide on Buying a Franchise. There’s an entire section on brokers included. (Plus, it’s a great document to use if you decide to become a franchise owner.)

Investing in a franchise business of your own is a big decision; a good franchise broker may be able to help you find the right one. Just do your homework before you engage in their services.

* Non US Government links 

 

(The Franchise King®, Joel Libava, is president of Franchise Selection Specialists Inc. Joel provides franchise advisory services to those interested in exploring franchise ownership. He’s frequently called on by the media for his no-spin insights on the world of franchising, and his 1st book, Become a Franchise Owner! was just published) 

Type: Community Blog