You have built a successful business and perhaps even have multiple business locations that are thriving. Out of the blue someone says, “You should franchise!” And the wheels start turning from there. You learn about the expected investment, hire a franchise attorney and complete your Franchise Disclosure Document (an over simplification for the purposes of this particular blog post ,but let’s go with it). Now you are ready to franchise. Even the most inexperienced franchisors know the success of a franchise depends upon the success of your franchisees. Of course it is tempting to take the first franchisee that comes along. After all, you have made a substantial investment and all of us would love to start with an easy sale. Before you deposit that first check, however, keep in mind the advice the Grail Knight gave to Indiana Jones in the Last Crusade,
Choose wisely, for while the true Grail will bring you life, the false Grail will take it from you.
Nothing could be closer to the truth when it comes to franchisors choosing franchisees. Underperforming franchisees require more support than strong franchisees. They also tend to complain and blame you for their ineffectiveness even when franchisees are responsible for their own failures. Sometimes they will even initiate litigation against you, or perhaps not pay their royalties and other fees. It may even result in a diminished reputation of your franchise when customers complain of poor service and other issues. These problems can definitely take the life out of a franchise business very quickly.
So how does a franchisor choose the right franchisee? Start off by considering these main points:
- Can the franchisee afford the start=up expense? Franchises can be expensive. Does the franchisee have sufficient capital not only to start the franchise, but also withstand the often difficult early months of the business.
- Is the franchisee someone that needs to be in control? If so, franchising is probably NOT for that person. You definitely want franchisees who are willing to operate within the franchise system. Franchisees who want to operate outside of the norms of the franchise system will eventually hurt your system because they will not provide the consistent product or service your customers expect.
- How does the franchisee feel about the ongoing costs? Franchisees will generally pay fees totaling 5-10% of their monthly gross revenues in a franchise business. Have frank conversations with the prospective franchisee about why these fees are paid. If you sense they neither understand, nor value the reasons for such fees, you should pass on them as a franchisee.
- Is the franchisee talking about doing it on their own? If a prospect is talking about doing the business on their own, then perhaps it is just best to wish them good luck and run from that person early on. In my experience, the business relationship with such prospects is rarely solid and usually does not stand the test of time.
I know it is tough to walk away from a sale, especially when you have invested a considerable sum invested in a franchise. But the early choices you make when selecting franchisees can often make or break a franchise. Choose wisely to become successful.