written by: R. Elizabeth C. Kitchen•edited by: Jean Scheid•updated: 11/13/2009
What does a franchise broker do? Is a franchise broker the right choice for helping you buy or sell a small business? Do you know the pros and cons of utilizing a franchise broker? Elizabeth Kitchen takes a look at franchise brokers.
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What is a Franchise Broker?
A franchise broker is an intermediary between the person seeking to buy a franchise and the franchise company. In most cases, the franchise broker represents several different franchises and is not directly employed by the franchise they are representing. However, the franchise broker most often has an established business relationship with the franchisor. Ultimately, they assist their clients in choosing the best franchise opportunity. In addition, many franchise brokers, at one time or another, have been employed by the franchisor and understand the franchisor's requirements.
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A pro of employing a franchise broker is that, often, it is a free service. Once a person purchases a franchise, the franchisor will pay the broker. Those seeking to purchase a franchise can seek franchise brokers where the all fees are paid by the franchisor. However, many independent franchise brokers will charge a fee so ask upfront what the fees are, if any.
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Another pro of employing a franchise broker is that they are experienced with the franchisor they represent. They have dealt with the franchisor in the past, and have developed a business relationship with them. They know what the franchisor will and will not and accept in addition to choosing the right franchisee as a candidate.
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A franchise broker will evaluate the interests, experience, and goals of the person wishing to purchase a franchise. By evaluating these objectives, they will be able to help aspiring franchise business owners figure out which franchise may be best for them. For example, if a person's experience and interests lies in food they would be well-suited to purchase a restaurant franchise and not a plumbing franchise. This pro of employing a franchise broker will prevent people from investing in franchises with little knowledge, which could lead to failure.
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Avoiding Bad Investments
A franchise broker can help an aspiring franchise business owner avoid bad investments. Franchise brokers know which franchises are not worthy investments and can help clients avoid these franchises. This pro of employing a franchise broker will help prevent people from losing money in a bad investment or market.
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A con of employing a franchise broker is limitations. By going through them, the number of franchises available to choose from will be limited to their area of expertise. For example, some franchise brokers deal only with one kind of franchise. Though the majority of all franchise brokers do represent dozens of different franchises, they do not represent them all, leaving dozens more franchise opportunities off the table for consideration.
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They are Salesmen
In the end, a franchise broker is a salesman and they are motivated by the professional fees they will gain upon a franchise purchase. In any sales market, when a person does not purchase a franchise where a franchise broker is involved, the franchise broker does not get paid. Therefore, they will do whatever they need to do, including convincing their clients, to buy or sell a franchise so that they can collect their commission. This con of employing a franchise broker is one to watch out for, especially when considering closing the deal. Make sure you understand all aspects of owning a franchise or selling a franchise before you delve into the franchise world.