Franchise Consultant Vs. a Business Broker
What is the difference between a franchise consultant and a business broker?
While franchise consultants and business brokers share a lot of similarities, there are some significant differences between the two, and each has its advantages and disadvantages. We will explore the differences below.
Before we begin it is important to know that many business brokers are also franchise consultants, or brokers, and vice versa. At the end of the day both introduce and help facilitate the sale of a business or territory for a business.
One of the key differences between the two is that franchise consultants tend to work directly with the franchisor when it comes to introducing prospective buyers. Business brokers tend to work directly with the actual business owner assisting them in selling their business. Business brokers also work with all types of businesses, independent as well as franchises. In the traditional role of a business broker, they are paid a broker fee by the seller usually based on a percentage of the selling price of the business. Franchise consultants are typically paid directly by the franchisor, usually a percentage of the franchise fee.
Referral fees for both parties can be quite impressive but business brokers can often earn a higher commission if the business sells for a high price… Hundreds of thousands into the millions. That being said business brokers also sell a lot of $50,000 – $100,000 businesses where their commissions tend to be less than the average franchise consultant commission of $25,000.
Similar to a realtor, business brokers are tasked with securing their listings as well as finding potential buyers. When a business broker secures a listing they generally have exclusive rights to sell that business for a period of time… Commonly 6 months to a year which can always be renewed. Franchise consultants rarely have exclusive rights to a franchise and operate more on a first to bring a buyer is who earns the broker fee.
Business brokers tend to be more hands on in all aspects of the transaction securing things like P&L’s, establishing a solid evaluation, NDA’s, etc. where a franchise broker operates more like a matchmaker and a referral source to the franchisor. Of course franchise consultants are still hands on but rarely handle passing of the franchise disclosure document, signing of the franchise agreement, etc. They truly are more of a referral source than a facilitator.
While many believe that business brokers are licensed and franchise brokers are not, this is not actually true. There is no such thing as a “business broker license” and no such thing as a “franchise consultant license”. Some franchise consultants do earn titles such as “Certified Franchise Consultant” but these tend to be very simple tests issued by their broker network and are more part of what they pay for when joining a group vs. actually earned. I mean do you really think a franchise consultant network is going to take someone’s $25,000 to join and train and then flunk them? No. Now that being said, when it comes to being a business broker there are currently 20 states in the US that do require that a broker have a real estate license operating under the assumption that the transfer of property will be included in the sale of the business. For this reason many business brokers do have a real estate license although many get around this law by having a “partner” who is a licensed real estate agent in that particular state.
So which is a better opportunity? A business broker or a franchise consultant? Both – and some groups are starting to introduce business brokering into their programs and vice versa. Business brokers can sometimes earn much larger commissions as often their listings are multi-million dollar businesses but they have to secure the listings. Business brokers tend to handle a larger work load for each transaction. Business brokers tend to have more liability in each transaction but of course there is E&O insurance and agreements to help protect them from legal exposure. For a franchise consultant securing listings is much easier as there are rarely exclusive listings. Most franchise consulting groups work with the same sets of franchises so a consultant is not out there fighting for the listings. While it is rare that a franchise consultant earns huge commissions on a multi-million dollar business, their commissions can sometimes reach six figures but average about $25,000 per transaction. Franchise consultants tend to have less legal exposure as the true due diligence is performed between the buyer and the franchisor, not the buyer and the consultant.
Lastly is the lifestyle comparison… Being a franchise consultant can often be a better lifestyle business because simply put… If they don’t perform they simply don’t get paid, but they do not have a franchisor breathing down their neck to sell sell sell! Many franchise consultants choose this business for that reason… It allows them to turn it on and off as they choose, taking long vacations or just working the times of year they choose. When a business broker secures a listing with a seller they do assume a greater responsibility to work hard each day to get the business sold. Anyone that lists their business with a business broker is probably not going to be OK with “oh I’m taking a few months off and will working on selling your business when I return”.