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What is a Broker?
In general terms, the role of a broker is to bring together a buyer and a seller, help each party work out its differences, and then collect a commission for closing the sale.  The two best-known examples are stockbrokers and real estate brokers.  In each case, the broker is licensed to do business by some governmental entity – the NASD or SEC for the former, and a state licensing board for the latter – where both buyers and sellers pay some shared portion of the overall commission, and laws govern exactly what may or may not be done to promote the product or service on offer.

Brokering a Franchise
The broker who specializes in marketing franchise opportunities operates similarly to the broker types mentioned above, but there are differences well worth noting.  Most franchise brokers are not licensed by any particular body and consequently may operate pretty much as they choose.  If you are looking to buy a franchise, none of the money the broker earns comes out of your pocket – instead, they receive a percentage of the upfront franchise fee you pay to acquire the business and, in some cases, a smaller cut of the annual licensing fee that goes to the parent company.  Finally, the franchise broker represents a number of different companies and is therefore not beholden to one corporation or industry.

The Good, the Bad…
As with any business transaction, there are pros and cons to deciding whether or not to use the services of a franchise broker.  Here are some positives:

• Vetting – Many brokers take the time to know their buyers, perhaps even giving them personality tests to better understand skill levels and motivation, which helps them create the best possible match between a prospective franchisee and a business
• Experience – The average franchisee will only do one such transaction in his or her lifetime, while a broker does it over and over again.  They understand the complexities and can walk you through some very challenging paperwork with a minimum of trauma.
• Reliable – As with any other sales job, brokers rely on referrals and positive word-of-mouth to obtain more business.  If they continually push clients into franchises that are a bad fit, or perhaps no good at all, pretty soon their commissions will dry up.
• Free – Need we say more?

The negatives are worth equal consideration:

• Limited choices – While many brokers have hundreds of franchises from which to choose, there are literally thousands of them on the market, and more seem to crop up every day.  Even after you decide that a daycare center is your ideal situation, your broker may have a relationship with only one.  In reality, there may be dozens available, leaving open the possibility that your best choice is not being properly represented.
• Sales pressure – A broker only makes money if you make a purchase.  No matter how well you are treated, never forget that a sales commission is at stake, and sometimes a pretty hefty one.  It’s not unusual for a broker to take home 40 to 50 percent of a franchise fee, meaning $20,000 or more is on the line.
• Downplaying options – Be wary if a broker has nothing but negative things to say about a franchise or type of business he or she does not represent.  You will have done your own homework and likely come to the table with ideas and opinions worthy of consideration.  A broker who continually steers you away from choices not available through their firm does not have your best interests at heart.

…And the Confusing
The world of franchising grows bigger and more complex from one year to the next.  New opportunities arise, old choices fall by the wayside, and the next hot item always seems to be right around the corner.  A franchise broker can help you safely negotiate the twists and turns, thereby guaranteeing your financial future.  A broker can also pressure you into making a poor decision or give you unwise advice that ends in disaster – or at least the lesser of two or more choices.  Knowledge is power.  Do your research, enter into a relationship by understanding what motivates a broker, and you will be much the better for it.

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