The Importance of Franchisee Selection

02/11/2009

Many franchisors, particularly of emerging concepts, tend to focus on finding and signing up any willing franchise buyer. While understandable, franchise agreements are long-term relationships, and franchisors are investing in their franchisees just as much as their franchisees are investing in them. Franchisors should remain cognizant of these facts and resist compromising long-term growth for short-term cash flow.

Franchisors should acknowledge and address this issue with their sales staff and independent franchise brokers. With regard to employees or independent contractor sales representatives, structuring compensation based on the performance of the franchisees they recruit should reduce the temptation to submit under-qualified prospects so as to increase the volume initial franchise fees.

The following considerations are frequently cited by industry experts as fundamental criteria for evaluating prospective franchisees. Successful franchisors generally define what qualities their successful operations share, and then remain loyal to these fundamental principles for determining the viability of candidates:

Ability to learn and subscribe to the franchisor’s system;
Possessing the personal qualities of successful operators of existing locations;
Having relevant business experience or general business acumen;
Being located in a geographic and demographic area that favors the franchise concept;
Having access to capital; and
Having grounded and realistic expectations.

While the specific traits and skills needed to succeed in any particular franchise system vary widely depending on industry, these fundamental requirements can generally be applied broadly across all franchise systems, regardless of the industry they are in.

The need to select quality prospects as franchisees is particularly important for new and early-stage franchisors. Signing an under-qualified franchisee as one of the first non-affiliated representatives of a franchise system may have dire effects on a new system’s ability to attract qualified franchisees. When counseling prospective franchisees, we recommend that they speak with as many existing and former franchisees as possible when performing their due diligence. If one or a few franchise owners are unhappy, have been unsuccessful or are simply unimpressive as people, this will impact a prospect’s view of the franchise system as a whole. Moreover, prospects may question the value of being associated with a franchisor’s brand if existing franchised outlets do not appear successful, regardless of the underlying reason for their lack of success.

By carefully screening and interviewing franchise prospects, franchisors can protect the quality and value of their franchise systems, enhance their ability to sell additional franchises, and avoid the headaches of franchise terminations and legal disputes. Selecting quality franchisees should be a top priority for any franchisor with a goal of long-term success.