People who are searching for a business may run across franchise brokers as part of the process. So what exactly does a franchise broker (also known as a franchise consultant) do?
Basically, a franchise broker educates a prospective franchisee about the franchise research process and the franchise industry. More importantly, a franchise broker brings a selection of franchise choices to the prospect. These choices are generated through a detailed process between the prospect and the broker to determine the prospect’s skills, goals, interests, lifestyle, and financial capabilities. The broker can then match a prospective franchisee with the right franchise options for them based on their personal wants and needs.
For instance, a husband and wife in Denver, Colorado may be searching for a business that offers a secondary line of revenue in addition to keeping their jobs. A business such as this may be difficult to find while they are also working. They decide to utilize a franchise broker in Denver with a large franchise inventory, who can recommend an investment that fits their criteria: semi-absentee business, within a certain budget, available franchises in Colorado, offering an in-demand product or service.
The broker works with the couple—a process that typically takes one to three months—assisting them with their research, until they select the right franchise for them, and make their investment.
What Is a Franchise Broker?
Franchise brokers play an important role in the franchise industry. They are a bridge between individuals seeking franchises to invest in, and the franchise companies (franchisors) who are seeking good franchisee candidates.
The franchise broker works as a recruiter for specific franchisors, finding potential investors who match the skills and financial requirements of the franchise, and then referring them directly to a specific franchisor for consideration. The franchisors utilize franchise brokers to uncover and recruit people who may never find a franchise on their own. Franchise brokers are a matchmaker between the two parties.
While a potential franchise investor isn’t required to work with a broker, franchise brokers can help individuals sift through thousands of available franchise concepts to find the right fit for them. A broker helps to streamline the franchise search process, which can very quickly become overwhelming to those who attempt to tackle it on their own.
Brokers can also answer franchise questions, helping the potential franchisee to be as educated as possible about their selected industry and franchise before they make a financial commitment. A franchise broker can play the all-important accountability partner role to make sure a franchise candidate is doing their proper research and asking the right questions. Trying to find out this information independently can be a challenge, and a broker can be a guide in the process.
Additionally, a franchise broker can help prospective franchisees find funding sources for their investment. Franchise brokers have access to multiple funding referral sources to help candidates get the financing they need for the franchise.
How Much Does a Franchise Broker Make?
People who are looking for franchise investments may think that it ultimately costs more to invest in a franchise if they use a broker. This is not the case. The cost for a franchise is the same whether a potential franchisee uses a broker or not. A franchise broker does not cost a candidate anything financially. The only cost of finding a franchise is time to do the proper research to get to a decision.
A franchise broker makes their money when a referred candidate pays their initial franchise license fee after they have done their research and made the decision to invest. The franchisor then pays the broker a referral fee for their service.
Payment to a broker after completion of the investment is similar to how real estate agents are paid when a client closes on a home. This referral fee process makes the services of a franchise broker no cost to individuals who are looking for a franchise. It’s a win for all three parties—the prospect gets their new business, the franchisor gets a new franchisee to join their system, and the broker gets paid for making the match.
The franchisors know the value of franchise brokers because they extend their recruitment reach further than they could do on their own. The franchisors are willing to pay a fee to a franchise broker for this service.
Are Franchise Brokers Licensed?
There are no licenses required to become a franchise broker with the exception of two states, Washington and New York. Both of these states require brokers to register with their state if the broker wishes to work with prospects in those states. However, franchise brokers can and should be trained and certified through their respective brokerage firms.
For example, the International Franchise Professionals Group (IFPG) is an international member-based franchise brokerage firm that has a certification program for members. A “CFC” designation after a franchise broker’s name indicates they are a “Certified Franchise Consultant” with IFPG and have gone through training and certification. This certification needs to be renewed each year in order to maintain it.
A lack of a certification may reveal an untrained broker who doesn’t have the skills and experience to answer client questions about the franchise industry.
A good franchise broker should care about your franchise business success, even though they can’t guarantee it. No one can ultimately guarantee the success of any business, but a franchise broker can play a strong support role for a franchise investor. They can provide a good hand off between their client and the franchisor. They should also be able to make good referrals of follow up professionals, such as accountants, insurance agents, attorneys, commercial realtors, etc.
A franchise broker will play a very important role in the franchise research process. If you are considering business ownership yourself, specifically franchise ownership, consider working with a franchise broker. Find out more about the Franchise Matchmakers process and how to get started.