What you should know before working with a franchise broker
There are more than 3,000 franchise opportunities available in the U.S. alone. Sorting through them all to find the right match can seem overwhelming, especially if you are not familiar with the franchise space in the beginning. For this reason, many people turn to franchise brokers for help.
Working with a broker comes with certain advantages. They may have tools to help you compare options quickly and efficiently and offer to guide you all the way through the discovery process. Brokers offer a streamlined buying process with shortcuts through the red tape and provide resources for every step along the way. While working with a broker may sound like a no-brainer, there are some things you should take into consideration before you decide to work with one.
Buying a franchise is a monumental decision. Before you put all your trust in a broker, it is important to understand more about the role they play in franchising, how they are compensated, and why you should approach your relationship with them with caution.
It is very common for business brokers to work under the guise of "consultant," however this is a misnomer. A true consultant is a business specialist versed in design, development and operation of franchising and the franchise relationship. A franchise consultant works for you and your interests. You pay them a fee because you are contracting them.
A broker “consults” with you but is essentially an agent for the franchises they represent. When they match you to one of those franchises, they receive a fee from the franchisor. This fee typically varies greatly from one franchisor to another and is not currently required to be disclosed to the franchise buyer. Brokers earn their money by providing participating franchisors with pre-qualified leads. They represent the “seller” and therefore have a fiduciary duty to the franchise, not to you.
Because brokers have a vested interest in guiding you only to the limited set of franchises with which they have an existing agreement, their advice can be highly biased. You may receive pressure to choose one of these franchises, whether or not it is the right fit. You may also be steered away from opportunities that could be a great fit because they do not align with the broker’s interests.
There are many reputable brokers who provide great value to the clients they serve. It is important to keep in mind, the broker industry itself is franchised. Some of these franchises churn out brokers with limited training and knowledge. If you do work with a broker, make sure they are reputable. Check to see if they are a member of the Certified Brokers Association or the International Business Broker Association.
Ask them questions such as:
- Do you have any franchising experience?
- How long have you been a broker?
- Are you part of a franchise yourself?
- What franchisors do you have an agreement with?
- What fee do you receive from Franchisor A in comparison to Franchisor B?
- Do you have any references of people you have helped find franchises?
- What franchise attorneys do you work with?
Above all, do your own due diligence to identify any possible red flags. This decision is something you are seeking for professional and personal fulfillment, not the broker's. Understand where your interests align and where they may differ. Be open and honest in your conversations and questioning to determine if this broker is someone whose opinion you can trust.
It is important for you to go into the franchise buying process with clearly defined goals. Take an honest assessment of your skill set, as well as limitations. Knowing what you want, and what support is needed, can help you better see which opportunity is the best fit. While a broker can help you compare opportunities, remember their goals are not necessarily the same as yours. Having your goals clearly defined will help you avoid being pressured or steered into something that is not a good match.
Sport Clips Haircuts understands success depends on whether the model is a good fit for the individual. For this reason, it has designed the discovery process to give candidates the tools to effectively evaluate the Sport Clips model as well as other franchise business models. This ensures candidates are better positioned to make an informed decision. Candidates report they have a better understanding of the fundamentals of franchising having gone through the process.
For more information on how Sport Clips can help you reach your goals of business ownership, click here.