What Is a Franchise Broker?

If you are planning to invest in a franchise but aren’t quite sure where to start on your journey, you may consider employing some outside help. A franchise broker is one of your main options when looking for assistance with the purchase process. Buying a franchise can be time-consuming, and finding the best fit can be challenging.

Some of the most common questions I get from potential franchisees are “What do franchise brokers do?”, “How do they get paid?”, and “Do you actually need one?”. In this guide, I’ll answer all of these questions and break down everything you need to know about franchise brokers.

Key Takeaways

• A franchise broker is a professional who connects franchisors with prospective franchisees, facilitating franchise sales in exchange for a commission.
• Franchise brokers assist potential franchisees in identifying suitable franchise opportunities, provide information about various franchise systems, and guide them through the purchasing process.
• Brokers earn a hefty commission from the franchisor upon the successful sale of a franchise, which can sometimes influence the opportunities they present.
• While brokers can provide valuable insights, prospective franchisees should conduct independent research and due diligence to ensure the franchise opportunity aligns with their personal and financial goals.

What Is a Franchise Broker?

The fact of the matter is that many franchisors simply do not have the time or resources to seek out interested franchisees on their own. This is where franchise brokers come in.

A franchise broker sells franchise businesses on behalf of franchisors in exchange for a commission. Brokers have access to vast networks of franchisors on the hunt for prospective franchisees. 

Franchise brokers make a commission for each franchise partnership they help broker. They essentially act as intermediaries who connect potential franchisees with parent companies. While brokers can help streamline the franchise purchase process, their recommendations are typically limited to franchises they have agreements with, which can impact the range of options they will present to you.

How Are Franchise Brokers Paid?

Franchise brokers earn an income by connecting prospective franchisees to franchising opportunities on behalf of franchisors. When the broker helps the prospective franchisee purchase a franchise, and the franchisee pays the initial franchise fee, they receive a commission from the franchisor.

The commission is typically between 50 and 70% of the franchise fee you pay the franchisor. In some cases, the franchisor may also pay the broker a percentage of the royalty fee, especially if the franchisee invests in more than one franchise down the road.

This means that franchise brokers don’t cost extra for franchisees. The relationship between a franchise broker and a franchisee is similar to that of a real estate agent and a potential home buyer. Brokers can help prospective franchisees find a good opportunity, but they are personally incentivized to push certain franchises since they make a commission once the franchise agreement is signed with their partner brands.

What Do Franchise Brokers Do?

One of the core duties of a franchise broker is to introduce potential franchisees to available franchise brands based on their business experience, goals, and investment level.

Present Franchise Opportunities

One of the core duties of a franchise broker core is to discuss franchise opportunities with franchisees to help them find a brand that connects with their experience and business goals.

Provide Some Background Information

A broker can also help you with certain aspects of your research. They may provide some insight into the franchise’s background, industry trends, and business performance. 

While you may find a lot of this information in the franchise disclosure document (FDD), it’s always good to look at more data. A broker can help you with your due diligence and help you determine the advantages and drawbacks of each potential opportunity.

Share Industry Knowledge

If you’re new to franchising, you have an exciting road ahead, but one with many hurdles. It is important to familiarize yourself with the franchise industry. How much money can you expect to make? What are the upfront and ongoing costs of operating a franchise? And how fierce is the competition?

When purchasing a franchise, you’ll be taking on a host of new responsibilities. A broker can provide you with some information on many of these details and help prepare you for a successful venture.

Help with the Acquisition Process

Before you take on the challenge of actually running a franchise, you’ll need to go through the complex process of acquiring one. The acquisition process involves a lot of paperwork, meetings, and negotiations. While you can certainly handle this process independently, having a broker by your side can be helpful. 

Connect Franchisees with Their Partner Brands

Franchise brokers work with a network of franchisors and are compensated when a franchisee signs an agreement. 

As I’ve mentioned, brokers are incentivized by the commission they receive from franchisors rather than the franchisee. A franchise broker’s survival depends on their ability to match you with the best fit. While they may introduce franchisees to some of the top franchise brands, their recommendations are typically limited to the franchises they are contracted to sell.

Difference Between Franchise Consultant vs. Franchise Broker

While franchise consultants and franchise brokers both assist prospective franchisees, their roles and incentives differ.

Franchise Consultant

Franchise consultants offer advice and recommendations to prospective franchisees based on their needs and goals rather than the franchisor’s. They may provide insights and advice on franchise fees, royalty payments, your and your franchisor’s responsibilities, and any legalities you might need to be aware of before entering into a lengthy contract. For example, Franzy can help you find franchises for sale that align with your industry experience and provide data-driven insights into the local competition you may face.

Franchise Broker

While many franchise brokers often offer advice and guidance to prospective franchisees, they are more specifically responsible for helping connect them to franchise brands. That said, the roles of a franchise consultant and broker often overlap. For example, brokers who complete the International Franchise Professional Group (IFPG) certification course can also provide consulting services to franchisees.

Strictly speaking, a franchise broker’s job is to sell franchise businesses to prospective franchisees on behalf of franchisors. This is why the franchisor pays the commission, not the franchisee. However, since brokers don’t get paid until they match franchisees with the right opportunity, their main clients are actually the franchisees in practice. As a result, most brokers also take on a consulting role.

Benefits of Using a Franchise Broker

While working with a franchise broker isn’t an absolute must for finding franchising opportunities, some investors choose to do so for some extra support.

Here are some of the benefits of working with a reputable and experienced franchise broker:

Additional Support During the Purchase Process

It’s no secret that purchasing a franchise is a complicated process. So, any extra assistance is very welcome for many prospective franchisees. Franchise brokers can help you navigate the process of finding and acquiring a franchise by connecting you with parent companies, providing industry data, explaining fees, and clarifying expectations. Since brokers only get paid once they have successfully matched you with a franchise, it is in their best interest to help you along the way.

Access to Opportunities Within the Brokers Network

It can be difficult to know where to start when searching for franchising opportunities. Not all listings are easy to find on traditional marketplaces, and you might miss the best investments without having some insider’s knowledge. Franchise brokers build relationships with networks of franchisors over the years to help you narrow down your options efficiently. A reputable broker will listen to your goals to help you find an opportunity that fits them. This means you won’t have to weed through pointless listings and can skip straight to the “good stuff.”

Saves You Time…Sometimes

Historically, the biggest advantage of using a franchise broker is that they saved you countless hours searching through endless franchise listings. Properly researching franchises when making a purchase is extremely important, but doing so effectively takes a lot of time.

That has completely changed with Franzy. Now, searching for and comparing franchises is really easy with our platform that takes the guesswork out of finding the best franchise opportunity for you.

No Cost to You…On The Surface

As I mentioned above, franchise brokers don’t charge prospective franchisees. Instead, they receive a commission from the franchisor once the franchise agreement is complete. This is a major perk as you won’t have to shell out any money for a broker’s services.

However, since the franchisor has to pay that broker cost, it takes away from using the initial franchise fee for startup costs, training, and operations to make your franchise location successful. More on that below.

Downsides of Franchise Brokers

As with anything in life, there are downsides to working with a franchise broker. While a reputable broker may be able to help you find a good match, working with a franchise broker isn’t always the best option. Let’s take a look at some of the downsides of franchise brokers:

Often Provide Biased Recommendations

Since brokers are paid commissions by franchisors, their recommendations are often influenced by financial incentives. This means that they may prioritize brands with the highest payout rather than the ones that are truly the best fit for you. While some brokers take a more consultative approach, there will always be some level of conflict of interest.

Limited Selection of Franchises

Brokers partner with a limited number of parent companies, so you’re only seeing a fraction of the opportunities available in the market. Even if a great franchise exists outside their network, they won’t be able to recommend it to you. This can make it difficult to explore all of your options and compare franchise models objectively.

Lack of Expertise in Certain Industries

While brokers are knowledgeable about the franchise industry in general, they won’t likely have deep expertise in every industry. If you’re considering a franchise in a specialized field, such as healthcare or technology, I wouldn’t recommend using a broker as they won’t fully understand the operational challenges or long-term viability of the business. If you do decide to go with a franchise broker, it is essential to do your own research and seek advice from unbiased industry experts alongside any guidance a broker provides.

Significant Cost to Brands and Initial Investment

We mentioned earlier that brokers take a 50-70% cut of the franchise fee, paid for by the franchisor. That cost is extremely significant and eats into the initial investment in your franchise location that could be spent on opportunities like team training, marketing, operations, and other startup costs.

Franzy doesn’t work with brokers, which lets franchisors keep a significantly higher percentage of the initial franchise fee to be able to invest in you and your new franchise location.

No Obligation to Act in the Franchisee’s Best Interest

Unlike financial advisors or legal professionals, franchise brokers are not required to act as fiduciaries, meaning they don’t have a legal obligation to put your best interests first. Their goal is to close deals, meaning their advice may not always align with your needs in the long run. This is why I always recommend taking any franchise broker recommendations with a grain of salt and ensuring you’re making wise decisions.

Are Franchise Brokers Necessary?

You don’t need to work alongside a franchise broker to find franchising opportunities or approach franchisors. 

In many cases, investors prefer to search for their own opportunities because brokers can often only offer recommendations on behalf of franchisors they already have relationships with. However, as you should be able to see by now, partnering with a broker can be beneficial or even necessary in certain situations.

If you’ve never invested in a franchise before, it may be a good idea to work with a broker or franchising expert before discussing anything with a franchisor. A broker can help you make sense of the jargon so that you don’t end up walking into a deal blindfolded. That said, I urge you to seek out impartial counsel before resorting to a franchise broker.

The fact is that franchise brokers use an archaic system that won’t work for every prospective franchisee. While a broker may be a solid option for some franchisees, it won’t yield the same results for every investor.

At the end of the day, the choice is yours whether to go with a franchise broker or tackle the purchase process on your own.

Partner with Franzy for the Best Franchise Opportunities

While franchise brokers offer some assistance, they aren’t the best choice. If you’re ready to explore the best franchise options with a trusted partner by your side, let Franzy help you make your next move.

Franzy goes beyond what standard brokers offer. The platform won’t simply connect you to opportunities and call it a day. Instead, Franzy arms you with the knowledge you need to make a smart decision. Franzy offers an advanced franchise research tool to help you scour the market for opportunities based on your unique needs and interests. This tool narrows down your search to franchises that meet your requirements in terms of cost, reputation, earning potential, and industry.