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3 ways to qualify your franchise prospects

Here are the things to look out for when considering prospective franchisees.
By Mark Siebert |

 

Franchise sales is not a hunt for the next check. It is a true screening process through which you will identify the best candidates to join your franchise family. The success of your system depends on the success of your franchisees, and the biggest factor in franchisee success is not the system—it is the people.

 

Ultimately, your role in assessing and turning down candidates who are ill-suited to your business is perhaps your most important job. And it may seem counterintuitive, but in the long run, a franchisor who is willing to walk away from the wrong sale will sell the most franchises and build the strongest network.

 

So how should you go about qualifying your prospects? What criteria should you use? Start with the following big three.

 

 

1. Capitalization and credit 

Your new franchisee must have—or have access to—the necessary funds to start up the business and carry it until it is profitable. A franchisee’s capital requirements will vary depending on a variety of factors, but most franchisors can readily identify a number at which their franchisees will have sufficient capital to open a unit and get it to profitability.

 

Undercapitalization is perhaps the no. 1 reason for franchisee failure. Adequate capital gives the franchisee time to learn on the job and recover from missteps, so every franchisor should take a conservative approach to franchisee approval in this area. Generally, the criterion is based on net worth, liquidity of assets, and the candidate’s credit score.

 

 

2. Work ethic 

The more difficult part of the screening process involves looking at the prospect’s work ethic. Today’s increasingly sophisticated franchisees know what most franchisors want and may tailor their answers to suit the situation—even when the ultimate result is not in their best interest. Simply asking, “Do you mind long hours?” will garner the expected response. And calling references will likely yield the same non result if the prospect has chosen his references well.

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So it is imperative to ask your prospects questions that will elicit meaningful information. For example, in addressing the question of work ethic, one might envision the following conversation:

 

Q. So what do you do in your spare time?

A. I like to work around the house and golf.

Q. Really? I’m a golfer too. What’s your handicap?

A. I’m a six. How about you?

 

You now know that this prospect may be spending too much time on the links to be an effective business owner. I have nothing against golf, but it is not often that you meet a low handicapper who is eager to put in the kind of hours most new businesses require.

 

The point is to examine how the prospect lives their life, their outlook, and their expectations. Ask about an average day, about hobbies and achievements. If your prospect is a “nine-to-fiver” who reports that after a “brutal” eight hours, they feel a need to go home and unwind before a brisk evening of TV, they are unlikely to have the energy level or drive needed for your business.

 

Let your prospects know what they are in for, and do not hold anything back. Franchisees expecting to sit back and watch the money roll in may wash out early, so it is in the best interest of both parties that such prospects fully understand the required depth of the franchise commitment.

 

 

3. Organizational fit

As important as financial readiness and work ethic are in choosing your franchisees, the subjective value of how well the candidate fits into your organization’s values and culture may be even more important.

 

Ultimately, part of the screening process must involve your own judgment. How well do you and your prospect get along? Do you share the same philosophies? Or is your relationship contentious from the start? Many of our clients have told us they accepted a candidate who looked good on paper, but who they “had a bad feeling about”—and they lived to regret it.

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With this in mind, it is incumbent on you to get to know each candidate one on one, the way you would get to know a life partner. For larger franchisors, it is vital that they work to institutionalize a practice of screening for cultural compatibility.

 

As you go through the evaluation process, think about traits like honesty, integrity, and compatibility, because you may be living with this franchisee for the next 20 years or more. If a candidate is confrontational in the interview process, constantly questions your established systems, or otherwise provides you with indications that they may not be a long-term fit, listen to your inner voice and walk away.

 

*****

Copyright © 2016 Entrepreneur Media, Inc. All rights reserved.

This article originally appeared on Entrepreneur.com. Minor edits have been done by the Entrepreneur.com.ph editors.

 

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