Franchise brokers are employed by franchise companies to sell franchises. If you are looking at franchise opportunities, sooner or later you will encounter a franchise broker.
Using a broker will not cost you anything, but brokers earn a commission only when you buy a franchise from one of their clients. When you sign your franchise agreement, the broker will typically earn 40 to 50 percent of the franchise fee you pay. In some situations, brokers may earn a percentage of your payments if you purchase additional franchises later, and they may even earn a percentage of the continuing royalty payments you make.
Using a broker to help you invest in a franchise is much different from using a broker when you buy a house. When you purchase a home, the homeowner pays a commission of approximately 6 percent, which is shared by the listing broker and the selling broker. The selling broker works for you, the home buyer, and can show you all the houses in the market where you want to live.
But franchise brokers only earn money on franchises offered by the clients they represent. So while there may be thousands of franchises available and hundreds that would be a good fit for you, the broker you are working with will probably show you only a very small percentage of available franchises.
While use of franchise brokers is increasing, only a small percentage of franchisors use broker networks, and even the largest broker networks only represent a relatively small number of franchise opportunities. Brokers can provide you with important information on franchising and the opportunities available — but only about the franchisors they represent.
There are many seminars, articles, and books on investing in a franchise. The International Franchise Association and the Federal Trade Commission are both excellent sources of information on franchising. For a more in-depth understanding of how to buy a franchise, consult Franchising for Dummies by Michael Seid, managing director of MSA, and the late Dave Thomas, founder of Wendy’s.
Virtually all franchisors advertise their franchises on lead-generation Web sites where many different opportunities are available. Some of these sites provide information about franchising in general and also charge the franchisors a listing fee. These referral sites are the modern version of newspaper and magazine advertising. Referral sites provide a wealth of information on franchising and let you explore specific franchisors at your leisure, without having to deal with any franchise salespeople until you are ready. Not all of these franchise information sites are referral sites; many are actually operated by franchise broker networks.
Include brokers in your network of information on franchise opportunities, but always keep in mind that they work for the franchisor and only get paid if you buy a franchise from one of their clients. If they tell you that a hair-care franchise is perfect for you, they may be right. In addition to the hair-care chain they introduce you to, get information on all of the other hair care franchises available. Their client may be the best fit for you, but you need to make that determination based upon your own research.