How a Franchise Broker Can Help you Buy a Franchise (2024)

This article is based on the video featured above, originally recorded for Vetted Biz YouTube Channel.

Many entrepreneurs that are looking to buy a franchise often ask, what’s a franchise consultant? What’s the difference with a franchise broker? Are they the same thing? In this article, we’re going to look at both and help you figure out the best for you.

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A broker, by definition, connects a buyer and a seller. In the eyes of a person new to doing business, a consultant might be someone who will provide advice on businesses.

There are three different categories when it comes to these relationships.

Franchise Brokers

Franchise brokers are generally only compensated if a candidate that they present moves forward and invests in a franchise with that franchisor who’s paying the commission. Brokers receive varying degrees of training dependent on the network(s) they are associated with. Most brokers have very strong sales acumen and the best brokers have prior experience in franchising (as franchisors and/or franchisees). A Franchise broker might call themselves a franchise consultant, franchise advisor, or franchise coach. 

It is common for a franchise broker to have a wide range of expertise in one or multiple industries based on their prior career experience.

Franchise brokers get compensated by franchisors to introduce their business to potential franchisees. They usually get paid only upon the placement of a candidate.

Once a prospective franchisee has enlisted the services of a franchise broker, they’ll begin the process of scouting for—and screening through—an arsenal of franchise opportunities. They’ll help prospective franchisees make the right choice based on professional/ personal desires.

Is a Franchise Broker expensive?

Using a broker will not change the amount of fees you pay the franchisor. But keep in mind that brokers get a commission—and earn income—only when you buy a franchise from a franchisor they represent. This is quite similar to a realtor when you buy property. Franchise brokers provide value to the prospective buyer and get compensation from the seller.

As depicted in the above real estate agent example, franchise brokers act as the buyer agency. The Seller agency is generally the franchisor themselves or a franchise sales organization (FSO) that is engaged by the franchisor.

When you sign your franchise agreement, the franchise broker will typically earn 30% to 70% of the franchise fee you pay to the franchisor or even more, since most brokers have a minimum fee in the range of $10,000. The other 30% to 70% gets split between the franchisor and the franchise sales organization (if the franchisor does not handle the sales).

In some situations, brokers may continue to earn a percentage of your payments to the franchisor if you invest in additional franchises later. And, in select instances, they may also earn a percentage of the continuing royalty payments you make. However, this is more common with the seller agents who invest significant upfront investment marketing the franchise.

Why do I need a Franchise Broker?

The franchise networks do not always do a great job in terms of vetting the different opportunities. Like real estate brokerage firms, they sell properties that are A class as well as distressed. The background of the broker is KEY and how they analyze the success of the franchise system.

A key question to ask the franchise broker is: how are they compensated? And if the franchisor does not compensate them, what’s stopping them from presenting the most lucrative franchise option to you that is going to earn them the most money and not necessarily earn you the most money?

Let’s look at the pros of working with a franchise broker.

The Pros of Working with A Franchise Broker

Saved Time

The biggest pro of hiring and relying on a franchise broker is the huge amount of time that you save. Given the staggering number of franchising opportunities available, finding and scouring the internet or databases for the perfect match is a time-consuming process that a franchise broker helps significantly speed up. A prospective franchisee can save a lot of money and time if a franchise broker steers them away from an unreliable or risky franchise match.

Furthermore, success rates increase with the engagement of a franchise broker, especially when compared with instances when their services do not get used. Like a realtor, they can arrange all the franchise interviews and help greatly with your franchise research.

Industry Knowledge

If you are new to the industry and find the right broker, you can possibly gain a lot from it.

That said, if you can find the right broker that has been working in a specific industry that you want to work in or deals with certain companies that you want to franchise with, it will work to your advantage.

The franchise broker can tell you more about the industry and figures of operations, such as revenue, gross sales, EBITDA, and so on. And you can you also benefit from the practical knowledge of the industry in your area.

Let’s look at the cons of working with a franchise broker.

The Cons of Working with A Franchise Broker

Inexperienced or Untrained Brokers

The biggest con of using a Franchise Broker is ending up with one who does not have training in interpreting and using the Franchise Disclosure Document or FDD. There are many franchise brokers who are in the business but do not understand the very disclosure which shows them the track record of the franchise they are promoting.

If franchise brokers do not know the disclosure and the risks that are discussed in it, then they essentially fail to understand what they are promoting. Before you commit to a particular franchise broker, you should verify their credentials, scrutinize their track record, and double-check their information.

According to FranConnect’s Franchise Sales Index, the top sources of deals in Q3 2020 were from two forms of referral sources: 1. Franchise Broker/ Consultant, and 2. organic referral (family, friends, associates, and customers). This significant finding illustrates the importance of these professionals to the growth of franchising.

A franchise broker can be really useful in your journey as a prospective franchisee and help you find the franchise that will be the best match for you. Not only do they have TONS of knowledge about the industries they are recommending, they know what it is like to work with a specific franchisor. In addition to all of that, franchise brokers usually work for free, making their money from the commission they get when they sign people up with franchisors. Saving your time is also a huge advantage—when you’re working a 9 to 5 job you might not have the energy to scour through tons and tons of documents yourself and even if you do, it is possible that you miss something. Franchise brokers guard against all of that by doing all the research for you and saving you tons of time.

There are franchise broker networks that connect franchise brokers with others. Let us look at the top broker networks.

Top Broker Networks

FranChoice

Jeff Elgin is the founder and CEO of FranChoice. He designed systems to facilitate the gathering of information between the company and the prospective franchisee so that both parties could make an informed business decision about the desirability of joining forces to build a business together.

In early 2000, Jeff developed a new approach that brought huge value to the candidates. He then established FranChoice as a result. He brought a team of veteran executives who had learned about every facet of the franchise industry to the table.

FranChoice boasts its 83 expert brokers as “an elite group of caring, experienced franchise experts who have been selected for their understanding of the industry and their ability to bring exceptional value to your search.”

As of today, FranChoice has helped open more than 20,000 franchises.

Franchise Brokers Association (FBA)

They found the FBA in 2008, with the mission to develop and grow the Franchise Brokering industry. It focuses on 4 areas, namely: Technology, Support, Scalability & Transparency. A 17 people team lead this network.

FranNet

FranNet is a franchise broker network of around 1000 people. It has been a six-time Inc. 5000 organization. They have 70 individual broker consultancies in all 50 states and five Canadian provinces. FranNet is comprised of an independent network of over 100 local experts. It is led by Jania Bailey, the CEO, and Jack Armstrong, the chairman.

International Franchise Professional Group (IFPG)

IFPG is a membership-based organization with more than 1,300 franchise professionals. It is made up of franchisors, Franchise Consultants and Brokers, Lenders, and other key players that help prospective franchisees get through the process of identifying and investing in a franchise business.

Founder and CEO Don Daszkowski launched IFPG in 2012. In 2019, Don enlisted entrepreneur Red Boswell to fill the role of President and help continue his mission.

There are 15 members on its executive board and franchisors like College Hunks, Fast Signs, and Great Clips are part of it.

The Entrepreneur’s Source

The Entrepreneur’s Source is an industry resource and franchise broker‘s group that has been operating for 35+ years. It partners with 250 franchises. That said, they market themselves as an alternative to franchise brokers and consultants and call themselves “career ownership coaches” that help you get to “career 2.0“.

The Franchise Consulting Company

The Franchise Consulting Company helps clients structure a franchise strategy based on the uniqueness of their situation and what they find most compelling as to brand, culture, and operating models in order to attain their goals. They have 137 consultants working for them.

Franchise Consultants Engaged By Franchisors

The second category is franchise consultants that focus on franchisors as clients. These franchise consultants generally work with businesses that could benefit from a franchise model. Then, they’ll work with a franchise attorney and operations manual consultant. As well as all different other parties to basically create a franchise system for an emerging business. Franchise consultants that have franchisors as clients might also help with recruiting, marketing, and other facets to help the franchise system grow.

Sometimes, even lawyers and accountants perform these functions too, albeit not under the same titles.

The last type of franchise consultant is those that are really focused just on franchise buyers or prospective franchisees.

Franchise Consultant/ Coaches for Franchise Buyers

There are franchise consultants/ coaches that work directly with franchise buyers.

The franchise buyer, after the initial consultation, will engage the franchise consultant to do a study anywhere from two to three weeks and arrange all the phone calls with franchisors and franchisees.

The job of a franchise consultant is to offer expert advice to prospective franchisees to help them determine if they’re suitable for franchise ownership and if so, which franchise or industry might suit them best or align with their goals. The consultant’s job is to educate the prospective franchisee about the industry and work with them to find great franchise opportunities based on their interests, budget, and skills.

When looking for a franchise consultant, look for one that is a good listener. It is also incumbent upon the franchise consultant to do their due diligence and research, network, and relationship-building to do their jobs fully. They should also take the initiative and meet with franchisors, as well as take opportunities offered by their franchise broker network (if associated with one) as well as ones not compensating the franchise consultant. The consultant’s role is to set up the perfect matches between potential business partners, which, in this case, are the franchisors and franchisees.

Consultants provide guidance and expert advice to help people identify franchises that are suitable matches for their interests, budget, skill set, and lifestyle. Your consultant should spend time learning about your background, skill sets, personal and business interests, and financial capabilities. You should receive personality and financial assessments to help determine if you are qualified for business ownership.

Vetted Biz’s sister company, Visa Franchise offers solutions to foreign nationals that are interested in buying a franchise (available for an upfront engagement fee).

Franchise Growth

According to IFA, there’s an expectation that franchising will contribute $477 billion to the U.S. economy in 2021 and that it will continue to grow. The need for franchise consultants and franchise brokers will only grow along with the industry. Their role will be pivotal for the continued success of both prospective franchisees and franchise brands.

Conclusion

In conclusion, a franchise consultant really acts as an advisor. They charge for these consultancy services that they provide. This is in opposition to how a franchise broker makes money: they get a percentage of the initial franchise fee or fees when they help a prospective franchisee successfully close a deal with the franchisor.

It is always wise to have the assistance of a good franchise broker when traveling through uncharted territory. Having an experienced guide at your side keeps you from falling into unknown pitfalls along the way. An experienced franchise consultant can help you find your fit with a smooth transition into franchise ownership. With the right franchise investment, you can live an empowered life, enjoy freedom and flexibility, and leave a legacy you can be proud of.

The franchise consultant is largely acting as the quarterback to ensure the entire process of finding, vetting, and buying a franchise is going forward in a timely fashion.

As franchising booms, so does the need for franchise consultants. The most successful consultants will be those most active in the industry and those who take the time to learn the ins and outs of the industry and keep up on franchise brands.