Franchisee Selection from Both Sides of the Table — conclusion

08/13/2010

The final installment in this series focuses on the Franchisor’s selection of franchisees.

Evaluation of Franchise Prospects by Franchisors

In the recent economic climate, franchisors have been tempted to ease their qualifications for new franchise prospects. However, franchisors need to remember that they are investing in their franchisees just as much as their franchisees are investing in them, and must resist compromising their brand’s long-term growth for short-term cash flow.

The following considerations are frequently cited by industry experts as fundamental criteria for evaluating prospective franchisees. Regardless of the economic conditions a franchisor may be facing, it should remain loyal to these fundamental principles for determining the viability of candidates:

Ability to learn and follow the franchisor’s system;
Fitting with the franchise system’s “culture”;
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 obviously will vary, 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, though it obviously remains critical for highly-developed franchise systems as well. While one “bad apple” may not be as detrimental to the brand image or the ability to sell franchises for larger systems, unsuccessful franchisees can cause significant administrative burdens, and quite possibly legal fees, for franchisors of all sizes. 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, and one or a few franchisees who are unhappy or unsuccessful, or who are simply unimpressive as people, can impact a prospect’s view of the franchise system as a whole.

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. We regularly counsel our new franchisor clients that selecting quality franchisees must be a top priority for their long-term success.

Individual franchised outlets and franchise systems as a whole stand a greater chance of success if they are built around committed franchise owners who trust and believe in the franchisor and everything it has to offer. Franchisees and franchisors both benefit substantially when they carefully evaluate each other during the pre-sale courting process.