How To Evaluate Potential Franchisees

As a franchisor one of the biggest keys to success is in effectively screening your potential franchisees. Selecting an unfit buyer could result in severe damage to the brands reputation and overall operation. However with the right evaluation process and qualified franchisees, the franchise brand can and will flourish.

One of the first steps in building a new franchise brand should be to determine what your ideal franchise candidate would look like. What are their financial capabilities? What hard skills do they need? What type of personality traits and values should they possess?

First and foremost, these candidates must be financially qualified to take on the responsibility of the business. They must have or have access to the necessary funds; not only for the initial investment costs but for the ongoing operational costs as well. Generally you will want to look at the person’s net worth, liquid assets and credit score. Each prospect should provide a personal net worth statement showing the source of their investment funds as well as secondary sources of income to ensure their overall financial stability. Be sure to verify the legitimacy of these funds by requesting documents from their bank.

A franchisor should look for people with an entrepreneurial spirit and strong work ethic: someone to take real ownership in the business. They should be motivated and willingly to do whatever it takes in order to make the business successful. Aside from financial ability and work ethic, a franchisee’s hard skills should also match up with the business. Do they have experience in your particular industry? Do they know how to manage people? Are they customer service oriented?

In addition to the hard facts, it is important to pay attention to your gut feeling. A candidate may appear to be a perfect fit on paper, but determining whether their personal values and morals match up with the business is another very important part of the screening process. Do you mesh well with the person? Are they honest? Do they have a positive attitude? Do you share the same business related philosophies? It is also important to look at what the franchisee wants out of the business and what their general goals are. Are they strictly looking to invest or do they plan on making this their full time job? Do they eventually want to own more than one location?

It is easy to become “loose” with the franchisee qualification process, especially with the underlying desire for their money. However in choosing the wrong buyers your focus can easily shift from brand expansion and business growth, to quality control issues and ongoing disputes. The cost of a location failing will far outweigh the money received upfront.

Ultimately a franchisor should view accepting a new franchisee as accepting a new partner into the business. Much of the businesses overall success will lie in the hands of its franchisees. Just as the franchisee evaluates the brand to make sure it’s a good fit for them, the franchisor must evaluate them to make sure they are a good fit for the business. The demise of many franchise brands is due to inadequate screening, so it is important to take the necessary steps in order to protect the business and its future.