4 Things to Know About Working with a Business Broker

August 4, 2016

Brokers can be a great mechanism to rapidly grow your franchise. Particularly for corporations without the financial means to employ in-house staff or purchase leads out of the gate, it's a cost-effective route to go.

At PLAYLive, we have used brokers to bring in over 50% of our franchisees. 

Like any business relationship, there are different elements that make for a more beneficial partnership. Below are several tips and things to consider that I have found valuable through our broker relationships.


1) Choosing a Brokerage Agency

Brokerage networks come in different sizes and have different reaches. When aligning your franchise with a firm, it's important to consider your immediate goals and focus on the business. For example, franchises looking to go national immediately will likely need a different partner than organizations focusing solely on growing a regional base.

Smaller brokerage firms typically serve a city or region. Additionally, they may work with a smaller number of franchises. This results in less competition for qualified leads for your business. The bigger agencies tend to have a presence in all major cities around the country. They also service a wider range of franchises, resulting in more competition within your specific industry. Some brokerage networks represent anywhere from 100-200 franchises.

Larger agencies will want to work with more seasoned franchises, typically requiring a minimum of eight to ten established units before they agree to work with you. For franchises looking to go national early on, there are two ways to position your company to work with a larger agency. First, you can sign non-exclusive agreements with smaller agencies to help grow your regional presence. As you grow and meet the minimum operating units, you can expand your broker partnerships to include a larger brokerage.

The other option is to covert corporate locations to franchises. This helps gain momentum as a franchise. Not only do you increase the number of operating units, you also have successful locations to showcase to brokers and prospective franchisees.

When choosing a brokerage firm, it’s important to do your homework. The brokerage company and their individual brokers will become the face of your organization to prospective buyers. Ensure you align with a reputable company.


2) Communication and Outlining Expectations

Communication is a fundamental base for many aspects of business. Your broker relationship is no different.

When a broker brings a prospective buyer to you, they want to know that you will be responsive and follow up with the prospect in a timely manner. Being responsive and thorough with general communication will give brokers confidence that you will be attentive with every lead they send your way.

The second component here is to outline expectations. As with any business partnership, it’s important to have a clear sense of what each party expects of the other.  Having open conversations about what the broker-franchisor relationship looks like throughout each phase of the process will help eliminate confusion, streamline things, and result in a better relationship.


3) Commissions, Bonuses, and Incentives

Brokers earn a commission when a client purchases a franchise. The franchisor sets the fee, although some brokers have different stipulations and minimums on their commission.

You are not the only franchise the brokerage firm represents. That means there are anywhere from dozens to hundreds of other qualified franchises that a broker can send leads to. While priority is given to the best franchise fit for clients, financial incentives play into the equation.

Be mindful of what is motivating the broker to bring quality leads your way. It’s not as simple as having a great franchise. It needs to be a good deal for them as well. Take note of how your franchise commission compares to others in your industry. If your coffee store franchise has a lower commission than similar coffee shop franchises in the market, it's likely that a broker sends qualified leads toward a different shop.


4) Closing the Deal

The broker only earns a commission if the client purchases the franchise. Needless to say, they will send valuable leads to franchisors that get the job done. You can offer the best commissions and bonuses out there, but if you don’t close deals with qualified candidates, over time brokers will start to steer their leads elsewhere.

Be prepared to close the deal.

This creates a juxtaposition between being selective with who you onboard, ensuring that they can succeed in your model, and wanting to close the deal with candidates referred by the broker.  It’s best to equip the broker with all the information necessary for them to send you the best candidates. The more you can narrow in on the attributes of an ideal client, the better leads you will get. 

You close more deals with better-qualified leads. The broker gets paid.


An Experienced Partner For Your Franchise Journey

If you are working toward converting your business into a franchise, partner with a knowledgeable franchise lawyer to ensure you are building the best legal footing for your corporation. Not only am I an experienced franchise lawyer, I am also a co-franchisor of PLAYLive.  This uniquely positions me to have a comprehensive understanding of franchising. Together, we can protect your most valuable asset.

Contact me today to start the process.